Reference:

Mengle, Rocky. “How Long Should You Keep Tax Records?” Kiplinger.Com, Kiplinger, 18 May 2021, www.kiplinger.com/taxes/602798/how-long-should-you-keep-tax-records. Accessed 23 Apr. 2024.

How Long Should You Keep Tax Records?

Keep your tax records at least until the time limit for an audit runs out — and even longer for some records.

BY ROCKY MENGLE
LAST UPDATED 3 DAYS AGO
CONTRIBUTIONS FROM
KATELYN WASHINGTON

Tax season is almost over, but don’t shred your tax records once Tax Day has passed. You might need those forms, receipts, canceled checks, and other documents later. The IRS generally has three years after the due date of your return (or the date you file it, if later) to kick off an audit, so you should save all your tax records at least until that time has passed. But you should keep some documents even longer, and it’s also a good idea to save copies of the tax return itself indefinitely.

It’s also a good idea to think about keeping certain documents for non-tax purposes. For instance, it might be wise to save W-2 forms until you start receiving Social Security benefits so you can verify your income if there’s a problem.

Here’s some information on how long you should keep certain common tax records and documents.

Tax records to keep for one year

• Keep pay stubs at least until you check them against your W-2s. If all the totals match, you can then shred the pay stubs.
• Take a similar approach with monthly brokerage statements.
• You can generally dispose of these statements if they match up with your year-end statements and 1099

Tax records to keep for three years

Generally speaking, you should save documents that support any income and tax deductions and credits claimed on your tax return for at least three years after the tax-filing deadline.

• Save W-2 forms reporting income.
• Save 1099 forms showing income, capital gains, dividends and interest on investments.
• Save 1098 formsif you claimed the mortgage interest deduction.
• Save canceled checks and receipts for charitable contributions (if you itemize deductions).
• Save records showing eligible expenses for withdrawals from health savings accounts and 529 college savings plans.
• Save records showing contributions to a tax-deductible retirement-savings plan, such as a traditional IRA.

If, like most people, you don’t itemize deductions on Schedule A, you might not need to save as many documents. For example, if you are not deducting charitable contributions, then you don’t need to keep donation receipts or canceled checks for tax purposes.

Tax records to keep for six years

The IRS has up to six years to initiate an audit if you’ve neglected to report at least 25% of your income. 

For self-employed people, who may receive multiple 1099s, it isn’t difficult to overlook reporting some income. To be on the safe side, they should generally keep their 1099s, receipts and other records of business expenses for at least six years.

If you don’t report $5,000 or more of income attributable to foreign financial assets, the IRS also has six years from the date you filed the return to assess tax on that income. So, save any tax records related to such income until the six-year window is closed.

Tax records to keep for seven years

Sometimes your stock picks don’t turn out so well, or you loan money to someone who doesn’t pay you back. If that’s the case, you might be able to write off your worthless securities or bad debts. But make sure you keep related records and documents for at least seven years. That’s how much time you have to claim a bad debt deduction or a loss from worthless securities.

(Note: Loaning money is considered a gift if you knew the person may not pay you back. Gifts are not tax-deductible, so you can’t write these off as bad debts.) 

Tax records to keep for ten years

If you paid taxes to a foreign government, you may be entitled to a credit or deduction on your U.S. tax return. You typically have up to 10 years to claim the Foreign Tax Credit, so you should save any tax records or documents related to foreign taxes paid for at least 10 years.

Tax records for investments and property

When it comes to investments and your property, you will need to save some records for at least three years after you sell. For instance, you should keep records of contributions to a Roth IRA for three years after the account is emptied.

You will need these records to show that you already paid taxes on the contributions and shouldn’t be taxed on them again when the money is withdrawn.

• Keep investing records showing purchases in a taxable account (such as transaction records for stock, bond, mutual fund and other investment purchases) for up to three years after you sell the investments.
• You must report the purchase date and price when you file your taxes for the year they’re sold to establish your cost basis(original price you paid, plus other costs to acquire the security), which will determine your taxable gains or loss when you sell the investment.

Even if your broker is required to report the cost basis, it is a good idea to keep copies of these records yourself. (If you inherit stocks or funds, keep records of the value on the day the original owner died to help calculate the basis when you sell the investment.)

If you inherit property or receive it as a gift, make sure you keep documents and records for at least three years after you dispose of the property. Income from selling property is considered taxable if sold for more than your basis in the property.

• The basis of inherited property is generally the property’s fair market value on the date of the descendant’s death.
• For gifted property, your basis is generally the same as the donor’s basis (usually the fair market value when you received the gift).

Keep home sale and improvement receipts and documents for three years after you’ve sold the home. Most people don’t have to pay capital gains tax on home sale profits.

• Single filers with $250,000 or less in gains don’t need to pay capital gains tax.
• Joint filers with $500,000 or less in gains don’t need to pay capital gains tax.
• Regardless of amount, filers must have lived in the residence for two of five years prior to the sale to avoid capital gains tax.

But if you sell the house before then or if your gains are larger, you will need to have your home purchase records. Save receipts for home improvements, too. They can increase your adjusted basis (cost of acquiring the home, plus cost of improvements, less casualty losses), which can help reduce your tax liability. Similar rules apply to any rental property you own.

Save records for at least three years after selling the property.

State tax record requirements

Don’t forget to check your state’s tax record retention recommendations, too. The tax agency in your state might have more time to audit your state tax return than the IRS has to audit your federal return. For instance, the California Franchise Tax Board has up to four years to audit state income tax returns, so California residents should save related tax records for at least that long.

Rocky Mengle

Rocky Mengle was a Senior Tax Editor for Kiplinger from October 2018 to January 2023 with more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, Rocky worked for Wolters Kluwer Tax & Accounting, and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals. He has also been quoted as an expert by USA Today, Forbes, U.S. News & World Report, Reuters, Accounting Today, and other media outlets. Rocky holds a law degree from the University of Connecticut and a B.A. in History from Salisbury University.

With contributions from

• Katelyn Washington – Tax Writer

Reference:

Mengle, Rocky. “How Long Should You Keep Tax Records?” Kiplinger.Com, Kiplinger, 18 May 2021, www.kiplinger.com/taxes/602798/how-long-should-you-keep-tax-records. Accessed 23 Apr. 2024.