Three years is the general rule to retain tax records, including the paper and electronic records Official site that support your tax return like receipts, bank and investment account statements, K-1s, W-2s, and 1099s. But don’t be hasty: failure to keep a paper trail for the information provided on your returns could lead to problems if you’re audited.
The reason for a three-year retention is that the statute of limitations for the IRS to audit your tax return is typically three years. The date begins on either the due date for your tax return or the date on which you filed your taxes, whichever is later. This is a general rule for retaining federal tax records, however; it’s prudent to keep most financial records longer than that as there are exceptions to this rule. Some states also have different records retention requirements. Here’s the lowdown on records retention, broken down by various types of documentation.
Federal Tax Records
Most tax advisors recommend that you retain copies of your finished tax returns indefinitely to prove that you filed. Even if you don’t keep the returns indefinitely, hold on to them for at least six years after they’re due or filed, whichever is later.
It’s a good idea to keep records that support items shown on your individual tax return until the three-year statute of limitations runs out. Examples of supporting documents include canceled checks and receipts for alimony payments, as well as records showing charitable contributions, mortgage interest payments and retirement plan contributions. You can also file an amended tax return during this time frame if, for example, you missed a deduction, overlooked a credit, or misreported income.
State Tax Records
The previous guidelines are all geared toward complying with federal tax obligations. Ask your tax advisor how long you should keep your records for state tax purposes, because some states have different statutes of limitations for auditing tax returns.
Plus, if you’ve been audited by the IRS, states generally have the right to resolve their own issues related to that tax year within a year of the federal audit’s completion. So, hold on to all tax records related to an IRS audit for a year after it’s completed.
Bills and Receipts
In general, it’s OK to shred most bills — such as phone bills or credit card statements — when your payment clears your bank account or at year end. However, if a bill or receipt supports an item on your tax return, follow the tax guidance above.
If you buy a big-ticket item — such as jewelry, furniture, or a computer — keep the bill for as long as you have the item. You never know if you’ll need to substantiate an insurance claim in the event of loss or damage.
Real Estate Records
Keep your real estate records for as long as you own the property, plus three years after you dispose of it and report the transaction on your tax return. Throughout ownership, keep records of the purchase, as well as receipts for home improvements, relevant insurance claims and documents relating to refinancing.
These documents help prove your adjusted basis in the home, which is needed to figure any taxable gain at the time of sale. They can also support calculations for rental property or home office deductions.
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