How Long to Keep Tax Returns and Records? Kiplinger Tax Letter

The answer depends on what type of document and the kinds of transactions you engage in.

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How long to keep tax returns and records? Not surprisingly, we get asked this question a lot by people looking for a cutoff date to toss paperwork relating to taxes that they have been saving for years. The answer depends on the type of document and the kinds of transactions you engage in.

Tax returns
As a general rule, you should keep your tax returns for at least three years from the due date of your return. That’s generally how long the IRS has to question items on your return and to bill you for any additional tax. It’s also the timeframe to file an amended return to seek a refund. IRS can go back up to six years if your return omits more than 25% of income. If fraud is proven, there is no limit. State tax returns may have to be retained for a longer time period. 

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Tax Returns and Records You Should Keep for Longer
Don’t automatically throw out all of your tax returns and records after three years. Look over old documents to see if you might need any parts of them in the future. Here are some common examples of records and returns that you should keep longer than three years.

Real Estate

  • Hold on to records that help establish the adjusted basis of real estate
  • Save your settlement sheet whenever you buy real property, including your home
  • Don’t throw away receipts or invoices for improvements made to the property
  • If you have multiple real estate properties, it’s best to have separate folders for each
  • Retain all files until at least three years after you dispose of the property

Taxpayers who keep good records will find it easier to calculate the adjusted basis of their real estate investments compared with people who don’t maintain records.

The same rules that apply to real estate apply to securities transactions. Be sure to keep your purchase documents for taxable mutual funds, stocks and the like. You'll need to include the purchase date and cost on your return in the year you sell the assets. Among other records to maintain:

  • Those showing stock splits, dividend reinvestments and nontaxable distributions
  • If you invest in bonds or Treasury bills or notes, track when these securities mature

IRAs and 401(k)s
If you’ve made nondeductible pay-ins to IRAs or post-tax pay-ins to 401(k)s:

  • Save records until three years after the accounts are depleted
  • File Form 8606 with your return for the year you make a nondeductible IRA contribution. If you don’t, those contributions will be treated the same as deductible pay-ins when withdrawn
  • Retain copies of Form 8606 and your 1040s for each year that such pay-ins are made
  • Hold on to Form 5498 or similar statements reflecting the amount of IRA payouts

If you inherit property or receive property as a gift, heed this advice:

  • For inheritances, you’ll need to know the date-of-death value. 
  • For gifts, you’ll need to know the donor’s cost. 
  • So, keep documentation of these figures until three years after you sell the asset

Businesses should hang on to payroll tax records for a minimum of four years after the due date for filing Form 941 for the fourth quarter of a particular year. Among the information to be retained: 

  • Wage amounts
  • Payment dates
  • Employee data (such as names, employment dates and Social Security numbers)
  • Periods for which workers were paid while absent because of sickness or injury
  • Copies of all W-4 forms and payroll returns, and amounts and dates of tax deposits
  • Records of tips earned by workers and fringe benefits provided to employees

Copies of worker health coverage forms should be kept at least three years after the deadline for filing these documents. These are the 1094 and 1095 forms that many employers are required to file to report employee health insurance data.

Also, records on costs of business assets, depreciation, etc., should be retained for decades.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.

Joy Taylor
Editor, The Kiplinger Tax Letter

Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.