How Long To Keep Tax Records?
Article Highlights:
- The general statute: 3 years
- Longer durations in some states
- Fraud, failure to file and other issues that extend the statute’s duration
- Keeping the actual return
- Ordering copies of previously filed returns
This is a common question: How long must taxpayers keep copies of their income tax returns and supporting documents?
Generally, individuals should hold on to their income tax records for at least 3 years after the due date of the return to which those records apply. However, if the original return was filed later than the due date, including if the taxpayer received an extension, the actual filing date is substituted for the due date. A few other circumstances can require taxpayers to keep these records for longer than 3 years.
The statute of limitations in many states is 1 year longer than in the federal statute. This is because the IRS provides state tax authorities with federal audit results. The extra year gives the states adequate time to assess taxes based on any federal tax adjustments.
In addition to the potential confusion caused by the state statutes, the federal 3-year rule has a number of exceptions that cloud the record keeping issue:
- The assessment period is extended to 6 years if a taxpayer omits more than 25% of his or her gross income on a tax return.
- The IRS can assess additional taxes without regard to time limits if a taxpayer (a) doesn’t file a return, (b) files a false or fraudulent return to evade taxation, or © deliberately tries to evade tax in any other manner.
- The IRS has unlimited time to assess additional tax when a taxpayer files an unsigned return.
If none of these exceptions apply to you, then for federal purposes, you can probably discard most of your tax records that are more than 3 years old; however, you may need to add a year or more if you live in a state with a statute of longer duration.
Examples: Susan filed her 2018 tax return before the due date of April 15, 2019. She will be able to safely dispose of most of her tax records after April 15, 2022. On the other hand, Don filed his 2018 return on June 1, 2019. He needs to keep his records at least until June 1,2022. In both cases, the taxpayers should keep their records a year or more beyond those dates if their states have statutes of limitations that are longer than 3 years.
Important note: Although you can discard backup records, do not throw away the copies of any filed tax returns or W-2s. Often, these returns provide data that can be used in future tax-return calculations or to prove the amounts of property transactions, Social Security benefits, and so on. You should also keep certain records for longer than 3 years:
- Stock acquisition data. If you own stock in a corporation, keep the purchase records for at least 4 years after selling the stock. The purchase data is needed to prove the amount of profit (or loss) that you had on the sale.
- Statements for stocks and mutual funds with reinvested dividends. Many taxpayers use the dividends that they receive from a stock or mutual fund to buy more shares of the same stock or fund. These reinvested amounts add to the basis of the property and reduce the gain when it is eventually sold. Keep these statements for at least 4 years after final sale.
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