Are you confused about how long you should keep tax documents? Many people are in this position because there are so many conflicting opinions. Fortunately, we’re here to set the record straight.
The primary reason for keeping tax documents is to provide backup to the IRS if you are ever questioned about your tax returns. The IRS has several different rules for many different situations. Having an understanding of these situations can help you better determine how long to keep your financial documents for tax purposes.
As you know, there are many records currently in your possession that you will need in order to file your next tax return. It goes without saying that you need to keep these in a safe place for the time being, since losing them will land you in a great deal of trouble when you file your return. Also, if you lose these documents after the tax return is filed, you may be in trouble if the IRS decides to audit your tax return.
Here are several tips to lean on if you are confused about how long you should keep tax documents:
- At the very least, all of your tax documents should be held onto for at least three years. So, if you are in the habit of throwing these out right after your file, make a change the next time around. By keeping your tax documents for at least three years you should be able to avoid any problem that may come your way. The IRS has three years from the date of your filing to audit the tax return. The IRS can only audit a tax return after 3 years if they feel that you underreported your income by 25% or more or you filed your tax return with the intent to commit fraud.
- But don’t some records need to be kept longer? For most people the answer is yes. For instance, anything related to a home purchase, stock transactions, or retirement accounts should be held onto for longer than three years.
- The IRS does not require that each taxpayer keep their records for a specific period of time. For this reason, there is nothing saying you cannot throw your documents away right now. But again, you need to keep records pertaining to your federal return because you never know when you may need them again. For instance, you may have to file an amended return because you made a mistake or omitted important information. Or worse yet, you have been audited by the IRS.
- The records that you should hang onto for three years or more include the following: charitable contribution receipts, expense receipts, bank statements, credit card statements, invoices, mileage logs, and proofs of payment. If you run a business or are self-employed, it is safe to say that you are going to have additional records to file away.
- Do you need some guidance from the IRS? If so, review Recordkeeping for Individuals.
What about the Seven Year Rule?
Many people are under the impression that they have to hang onto all of their tax documents for at least seven years. While this is not entirely true, there are some records that you want to keep for this long. Above all else, you should keep a copy of your tax return and all supporting documents for at least this long – if not forever. You can file these documents in a folder, envelope, or box and leave them be.
In closing, it is technically your decision on how long you keep your tax documents. Just remember that it is suggested to keep all records for three years, and many for much longer than this.