How long should you keep copies of tax information? Learn about the types of documents you should keep and how long to keep tax returns.
Filing your taxes and meeting the set deadline is something everyone longs for. However, what happens next? You’ve finally filed your taxes, but how long to keep tax returns? Understandably, you’d want to forget about the experience. But before you rush to discard everything, know that you need to save tax supporting documents properly with each annual return.
Read on to learn how long to keep tax returns (and why), how long to keep bank statements, and the best ways to store these documents.
Is there any reason to keep old tax returns? Keeping your tax returns for a given period is critical, as it allows you to file a claim for a refund that you are entitled to after filing your taxes. You need these documents for you to claim for a refund as they act as proof. Discarding them will make it challenging to prove that the IRS owes you a refund.
Retaining the documents also shows that you actually filed the returns. That means that the IRS would need to see a confirmation email from the electronic filing or a signed certified mail receipt if you filed your returns by mail.
Note that the IRS only keeps the transcripts of the returns on their computers. That’s why the IRS asks for a copy of the actual tax return when auditing taxpayers.
The IRS keeps your info, but are you wondering how long to keep personal records? The IRS requires you to keep your documents and tax records for three years from the date the return was filed or the due date of the tax return. They state that you need to keep these records as long as it is necessary to prove deductions or income on a tax return.
The three-year time frame falls under the Period of Limitations issued by the IRS. That’s the time that you can use to amend the tax return. It’s also the timeframe the IRS gives to perform an audit on your return.
When it comes to how long to keep tax returns after a death, there are set guidelines. You need to keep the tax records for at least three years after the filing of an estate tax return or after a person’s death, whichever comes later. Documents like marriage certificates, death certificates, birth certificates, or divorce decrees should be kept indefinitely.
You could also be wondering how long to keep state tax returns? The time set by the IRS is at least three years from the date of filing your tax return. However, this period can be extended to six years if the income reported is more than 25% off from the actual amount. Some states have longer statutes of limitations, which are different from the IRS rules.
How long should you keep your tax records in case of an audit? You should keep your tax records for three years from the date you filed your initial returns or two years from the date you paid the tax. Nonetheless, you need to hold on to your tax records for seven years.
How long to keep tax returns for business? Although the IRS recommends keeping all your business tax records for three years, most bookkeeping services and accountants recommend keeping these documents for at least seven years. That is enough time to defend tax lawsuits, tax audits, and possible claims.
These documents include payroll tax records, business tax returns, ownership records, current employee files, accounting services records, and operational records, among other documents.
There are some cases where you may need to hold on to the tax records for more than three years. Some of these situations include:
You’ll need to keep your tax records for six years from the due date of the tax return or for six years after the date of filing in certain circumstances. For example, if you didn’t report income that you should have reported, and it was more than 25% of the gross income stated on your records, you must keep records for longer than normal.
It’s vital to keep your employee’s tax records for four years after the payroll due date or after they are paid.
Although the three-year period applies to deductions made to your property like the loss from a sale or depreciation, there is an exception. For example, the time between when you sell your property, and when you don’t need to store these documents can be longer than three years.
These documents that you may need to keep longer than three years include receipts for equipment, titles, and deeds.
If you happen not to file any returns at all or file a fraudulent return, the IRS has no statute of limitations on unfiled returns or fraudulent returns. They can take action against you at any time.
You’ll need to produce the tax records when the IRS asks for them. That’s why it’s essential to arrange them in an orderly way and a secure place. Start by getting a digital filing system. You can also opt to go with paper records, although this can be messy as you may misplace some.
Organize the documents by the year and categorize them into different forms, like income forms or bank statements. You can have separate files for long-term assets and make flash drives of valuable documents and place them in a safe deposit box.
If you’re considering keeping your financial records in an electronic format, note that the IRS requires any electronic record storage to meet the same standards that apply to hard copies. That also means maintaining the storage for the period required under the tax statute of limitations.
As for the bottom line on how long to keep individual tax returns? A minimum of three years and a maximum of seven years, depending on your circumstances. The IRS gives three years, but there are exceptions to this timeframe. Determine what rules are set by your state as some states are known to expand the period by four to five years.
If you are not sure about what documents to keep and those to discard, we are here to help you. At ATAX, we help you with the filing of taxes, but we also advise you on time you can keep your tax returns. Visit or call one of our ATAX offices today for more on maintaining tax records.