Are you wondering how long to keep tax records? Do you have a pile of old tax records sitting in your home just taking up space and collecting dust? Most taxpayers know that they need to keep these old tax returns, but many are unsure just how long they need to keep them. Many end up just keeping them indefinitely, although that is not necessary! So, just how long do you need to keep them and how should you dispose of them? We will explain everything that you need to know about the retention of those old tax returns including how long you should hang onto them, the best methods for storing them, and how to properly dispose of them.
How Long To Keep Your Tax Records
Now that you have filed your income taxes, how long do you need to keep those old records? You need to keep your tax returns for a minimum of three years from the date you filed the return or two years from the date you paid the tax – whichever is later. This is the retention period for old returns that do not have any special circumstances which apply to them. In some situations, the IRS requires that you keep your returns for longer than three years.
Some examples of situations in which you need to keep your returns for longer than the standard three-year statute of limitations are mentioned here. For example, if you file a claim for loss from worthless securities or a bad debt deduction, then you need to keep your returns for 7 years. If you do not file a return or you file a fraudulent return, then you need to keep your records indefinitely. Employment tax records must be kept for 4 years. If your business has a deferred tax liability, then you might need to retain your records for a certain period of time from the date the tax is actually paid. Your filing status, such as married filing separately, generally has no effect on how long you need to keep your records.
Not only do you need to keep copies of your tax returns, but this also means that you must keep all records associated with those returns. This includes, but is not limited to, receipts, bank statements, brokerage statements, IRA information, canceled checks, credit card statements, business expense documentation, and any other related documents to your tax filing. If you are self-employed, then you will need to keep everything related to your business. Basically, if you are subject to an IRS audit, you need to be able to provide all the supporting documentation for your tax return to prove the validity of it. Since the Coronavirus pandemic caused the tax filing due date to be adjusted in 2020, you should know that change could affect how long you need to keep your old records.
IRS Period Of Limitations
Basically, the IRS period of limitations is the amount of time that you must keep your return. It is also the time period in which you can amend your return to claim a refund or additional tax credit or the IRS can assess additional tax. The IRS has very specific rules that are laid out to identify the period of limitations for different situations. This period may be two years, three years, four years, six years, seven years, or even indefinitely in some situations. You must retain your tax documents for the length of time specified by the IRS for your specific situation.
If you find it too difficult to remember the details of all the different time periods, then you should keep your returns for 7 years. This is the longest period required for any records, except for those relating to real property. Unless of course you did not file a return or filed a fraudulent one – in which case you should keep your records indefinitely. With records becoming easier to store electronically today, some people choose to simply keep all their records indefinitely. While this is not required by the Internal Revenue Service in most cases, there is nothing that prohibits you from doing this. It also makes it easy to go back and review your old records in the event that you need them in the future.
Many people ask, “How many years can you file back taxes?” In most cases, if you did not file a return at all, then you can file back taxes at any point in the future. Whether you can still claim a tax refund for that year might depend on your specific situation. If you have any questions about how long to retain specific records or whether you can still file back taxes, you can always ask your CPA for help.
Tax Returns Related To Property
Income tax returns related to property have slightly different rules. This rule really applies to any real property that you might own. It could be your personal home, a rental home, or other property which you might own. You need to keep these records until the period of limitations expires for the year in which you dispose of the property. So, if you own a rental property and report gross income from that property on your returns for 20 years, then you may have some returns that you must keep for over 20 years. The returns must be kept because they must be used to figure depreciation, amortization, or the depletion deduction as well as any capital gains that you may experience from the sale of the property.
If you acquired property or real estate through a nontaxable exchange, then you must keep those records even longer. You must keep all the records from both the new property and old property until the period of limitations expires for the year in which you dispose of the new property. These records must be kept to prove your tax basis in the property. Any gains calculated from the property are not always as simple as subtracting the purchase price from the sales price.
State Tax Retention Requirements
So far we have been mostly talking about the IRS retention requirements for your old tax returns. However, remember that you will need to keep your state tax returns as well. The rules vary by state, so it is generally a good idea to keep those for at least the same amount of time that you keep your Federal returns. Some states, like California, have up to 4 years to audit your old returns. This means that you should keep all your records associated with those returns for at least 4 years. If you file an amended return, make sure that you keep both the original return and the amended one.
If you decide to keep all your records indefinitely like some people, then you should not have to worry too much about the state tax requirements. Many of the documents that you will need to keep with your returns will be the same, so you should already have them covered. Just make sure that you hang on to those state tax returns along with that documentation.
Storing Your Tax Documents
The question often arises of how the documents need to be stored. Do you need to keep hard copies of them all or will electronic copies suffice? Keeping a hard copy of your return is actually not necessary. Many people choose to store them electronically now for many reasons. First, it does not take up a ton of space in your office. Years ago, you needed to have filing cabinets or document boxes to store all the paper records associated with your tax returns. However, today, you can simply scan all your records and keep an electronic copy. It makes things much simpler. If you use a tax software like TurboTax, then it is easy to get electronic copies of your returns. You will simply need to make sure that you convert your supporting documentation into electronic versions. It can also make it easier to retrieve the documents that you need because you can easily separate the documents by tax year or really any other method that you like. In addition, keeping these records for tax purposes indefinitely is quite easy. Once you have the records stored electronically, they can stay there forever quite easily.
There are a few things to keep in mind when storing digital copies of your records. First, make sure that you keep a regular backup. Not many things would be worse than losing several years worth of tax returns because your computer crashed. If you store your documents in the cloud, make sure that your cloud provider encrypts your data. Those old records contain your Social Security number and other important financial data. You do not want to open yourself up to identity theft or some other crime by storing all your personal information in an unsecured location.
Disposing Of Old Tax Returns
So, you have finally reached the period of limitations on some old returns and you are ready to dispose of them. What now? What is the appropriate method for getting rid of those old returns? You should not simply throw your old documents into the trash. There is way too much sensitive data and personal information that could be obtained by a criminal. At a minimum, you should shred these documents before disposing of them. Make sure that you use a shredder that cuts them into fine pieces so that someone cannot easily reassemble the documents to obtain your personal information from them.
If you store your records electronically, make sure you keep this in mind when getting rid of an old computer. Those documents and records might still be accessible even though you think you have deleted them. If necessary, you should consult a computer expert to ensure that the files are completely removed from your PC before you give it to someone else.
The Bottom Line
Keeping your old tax returns can be a pain, but it is a necessary requirement laid out by the IRS. The amount of time that you must keep them varies based on your specific situation. If you are storing your records electronically, it is easy enough to just keep them indefinitely. This ensures that you are in compliance with the IRS requirements, and you can view your past documents should you need to access them at any point in the future. If the IRS comes back and says that you have some additional tax liability, you must have your records to prove your case. Many people choose to keep all the records related to their personal finances and not simply their tax records. Although this is not required, it is generally a good idea.
Frequently Asked Questions
Can the IRS go back more than 10 years?
Generally, the IRS does not go back and audit returns that are more than 7 years old. However, there are a few instances where they do have the authority to go back longer than this. If you file a fraudulent return or fail to file a return at all, then they can go back more than 7 years. In fact, you must keep any records related to those situations indefinitely. They could technically go back more than 10 years to investigate those cases and assess the taxes that might have been due.
Is there any reason to keep old tax returns?
Yes! It is required that you keep your old tax returns for at least three years in most cases. In some situations, you need to keep your returns for even longer. In addition to your returns, you need to keep all the supporting documents that went along with those returns. If the IRS decides to audit your returns, then you will need all that documentation as proof that you filed your returns correctly.
How long should you keep your tax records in case of an audit?
It depends on your specific tax situation for a given tax year. In most cases, you will need to keep your returns for at least three years. However, there are some instances where you must keep the returns for up to 7 years or even indefinitely! The IRS period of limitations explains exactly how long you must keep your returns for each specific situation. If you are unsure, you can always ask your CPA or simply keep the returns indefinitely.
What is the IRS statute of limitations?
The IRS statute of limitations in the most basic case is three years. If you claimed a tax refund or deductions from worthless securities or bad debt, then that period increases to 7 years. They have a statute of limitations on employment tax records of 4 years. Maybe you’re wondering, “Do I have to file taxes?” If you improperly fail to file a tax return, then there is no limit to the statute of limitations for the IRS. The period varies based on your specific tax situation, but the IRS rules plainly state how long the period lasts for each situation.
How can I get copies of my old tax returns?
If you have lost or misplaced your old records, then maybe you are wondering how to get a copy of my tax return. If you use a tax software, then you should be able to obtain copies of your prior records from the software on your computer. If you use a CPA for your taxes, then they likely have copies of your old records that they can provide. You can also contact the IRS and obtain copies of your old tax returns. You can order them online, by mail, or over the phone.
