Advertisement
tax returns

How Long Should You Keep Tax Records?

Save your tax documents at least until the time limit for an audit runs out—and hold on to some records even longer.

There's always a sense of relief when you file your tax return. You can forget about taxes for a while! But what should you do with all the forms, receipts, canceled checks and other records scattered across your desk? Do you need to keep them, or can you throw them away (or, should I say, shred them)? 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 of your return, so you should hold on to all of your tax records at least until that time has passed. But is that long enough? Well, it depends.

Also keep in mind that you might want to retain certain documents for non-tax purposes. For example, 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.

Advertisement - Article continues below

Here's a general rundown on how long you should keep certain common tax records and documents.

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 shred them if they match up with your year-end statements and 1099s.

Three Years

Generally speaking, you should hold onto documents that support any income, deductions and credits claimed on your tax return for at least three years after the tax-filing deadline. Among other things, this applies to:

Advertisement
Advertisement - Article continues below
  • W-2 forms reporting income;
  • 1099 forms showing income, capital gains, dividends and interest on investments;
  • 1098 forms if you deducted mortgage interest;
  • Canceled checks and receipts for charitable contributions;
  • Records showing eligible expenses for withdrawals from health savings accounts and 529 college-savings plans; and
  • Records showing contributions to a tax-deductible retirement-savings plan, such as a traditional IRA.
Advertisement - Article continues below

If you don't itemize deductions on Schedule A, you might not need to hold onto as many documents. For example, if you're not deducting charitable contributions, then you don't need to keep donation receipts or cancelled checks for tax purposes.

Six Years

The IRS has up to six years to kick off an audit if you've neglected to report at least 25% of your income. For self-employed people, who may receive multiple 1099s reporting business income from a variety of sources, it can be easy to miss one or overlook reporting some income. To be on the safe side, they should generally keep their 1099s, their receipts and other records of business expenses for at least six years.

Seven Years

Sometimes your stock picks don't pan out, or you loan money to your deadbeat brother-in-law who can'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.

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—and you get to decide if you want a credit or deduction. If you claimed a deduction for a given year, you can change your mind within 10 years and claim a credit by filing an amended return. You also have 10 years to correct a previously claimed foreign tax credit. For these reasons, save any records or documents related to foreign taxes paid for at least 10 years.

Investments and Property

When it comes to investments and your property, you'll need to save some records at least three years after you sell.

Advertisement
Advertisement - Article continues below
Advertisement - Article continues below

For instance, you should keep records of contributions to a Roth IRA for three years after the account is depleted. You'll 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'll need to report the purchase date and price when you file your taxes for the year they are sold to establish your cost basis, which will determine your taxable gains or loss when you sell the investment. Brokers must report the cost basis of stock purchased in 2011 or later, and of mutual funds and exchange-traded funds purchased in 2012 or later. But we recommend maintaining your own records in case you switch brokers. (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.)

Advertisement - Article continues below

If you inherit property or receive it as a gift, make sure you keep documents and records that help you establish the property's basis for at least three years after you dispose of the property. The basis of inherited property is generally the property's fair market value on the date of the decedent's death. For gifted property, your basis is generally the same as the donor's basis.

Keep home-purchase documents and receipts for home improvements for three years after you've sold the home. Most people don't have to pay taxes on home-sale profits—singles can exclude up to $250,000 in gains and joint filers can exclude up to $500,000 if they've lived in the house for two of the five years prior to the sale. But if you sell the house before then or if your gains are larger, then you'll need to have your home-purchase records to establish your basis. You can add the cost of significant home improvements to the basis, which will help reduce your tax liability. (See IRS Publication 523 for more details.) Similar rules apply for any rental properties you own; save records relating to your basis for at least three years after selling the property.

State Record Retention 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 example, the California Franchise Tax Board has up to four years to audit state income tax returns, so California residents should save related documents for at least that long.

Advertisement

Most Popular

2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Chiropractor Trying to Get Business the Wrong Way – Illegally
careers

Chiropractor Trying to Get Business the Wrong Way – Illegally

A new chiropractor’s fledgling business plan to attract patients may sound reasonable at first look, but it’s actually against the law, and the same p…
June 30, 2020

Recommended

20 IRS Audit Red Flags
tax returns

20 IRS Audit Red Flags

There's no sure way to avoid an IRS audit, but these red flags could increase your chances of drawing unwanted attention from the IRS.
July 1, 2020
10 IRS Audit Red Flags for Retirees
retirement

10 IRS Audit Red Flags for Retirees

Watch out: These things can increase the chances that the IRS will give your tax return a closer look.
July 1, 2020
Is There an Unclaimed Tax Refund Waiting for You?
tax refunds

Is There an Unclaimed Tax Refund Waiting for You?

The IRS has $1.5 billion in refunds from 2016 waiting to be claimed. Is any of that money yours?
July 1, 2020
Travel Tax Credit: Will Uncle Sam Pay You to Take a Vacation?
income tax

Travel Tax Credit: Will Uncle Sam Pay You to Take a Vacation?

There's a proposal in Congress to give you an "Explore America" tax credit of $4,000 or more to cover travel expenses. But don't pack your bags quite …
June 30, 2020