15

According to the answer to this question: "How long should I keep my bills?", I should hold onto my taxes and supporting documents for 7 years.

Is this the right length of time? Unfortunately, my taxes tend to be complicated, and 7 years worth of tax returns are a bit of a burden. Is the basis for this number due to statute of limitations or something else?

  • I've expanded your question a little to allow for the possibility that the "7 years" answer is not the best recommendation. – Ben Miller Jan 24 '17 at 18:37
  • 3
    Is digitization an option? – Nosrac Jan 24 '17 at 19:09
  • 1
    @DanielCarson It could be, but before I go that route I'm trying to determine if it's even necessary. I've a finite amount of physical space, so I want to know how much I need to save before I digitize since that's a pain in the neck (my scanner is a 1 page at a time situation). – Pyrotechnical Jan 24 '17 at 19:18
  • @Pyrotechnical - I have tax information back to 1992 for both myself and my business in digital format (PDF). I asked to use the scanner at work and was able to convert all the paper copies to digital in a Saturday afternoon. This is a great solution for bills, taxes or anything of that nature. It's easy to encrypt and have backups wherever you like. – Benny Hill Jan 25 '17 at 0:17
  • Related - you could possibly need to track unreimbursed medical receipts for a long time: money.stackexchange.com/questions/73846/… – TTT Jan 25 '17 at 5:12
12

How long you need to keep tax records will depend on jurisdiction. In general, if you discard records in a period of time less than your tax authority recommends, it may create audit problems down the road. ie: if you make a deduction supported by business expense receipts, and you discard those receipts next year, then you won't be able to defend the deduction if your tax authority audits you in 3 years.

Generally, how long you keep records would depend on: (a) how much time your tax authority has to audit you; and (b) how long after you file your return you are allowed to make your own amendments.

In your case (US-based), the IRS has straight-forward documentation about how long it expects you to keep records:

https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records

Period of Limitations that apply to income tax returns

  1. Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.

  2. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.

  3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.

  4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.

  5. Keep records indefinitely if you do not file a return.

  6. Keep records indefinitely if you file a fraudulent return.

  7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Note that the above are the minimum periods to keep records; for your own purposes you may want to keep them for longer periods than that. For example, you may be in a position to discover that you would like to refile a prior tax return, because you forgot to claim a tax credit that was available to you. If you would have been eligible to refile in that period but no longer have documentation, you are out of luck.

  • Can you clarify if Item #3 is applicable to losses from a rental property? Or is that more related to something like a short sale on a property? – Pyrotechnical Jan 24 '17 at 19:26
  • @Pyrotechnical I didn't write that list, the IRS did. My advice to you is simply to keep the records at least the 7 years. See JoeTaxpayer's answer for another reason you might want to do so. – Grade 'Eh' Bacon Jan 24 '17 at 19:53
  • 8
    #6 cracks me up. it's not every day the irs gives you such explicit instructions on how to commit tax fraud :) – james turner Jan 24 '17 at 21:11
  • 3
    @jamesturner Amusing though it seems, this goes to JoeTaxpayer's answer - if the IRS audits you under suspicion of tax fraud, they have an extended 'statue of limitations'. Normally they would not be able to audit you back 7 years, but if, for example, you committed tax fraud in 2013, they could automatically audit you for years further back than that. What it really should say is "keep records for longer, if you are afraid we will audit you under the guise of suspected tax fraud, otherwise you will have no way to defend yourself." – Grade 'Eh' Bacon Jan 24 '17 at 21:26
  • @jamesturner I think what the IRS is basically saying that if we suspect you of not paying taxes, you better have every single record of things you should have paid taxes on so that we can only charge you for that, otherwise we are going to slap down a tonne of fines. – SGR Jan 25 '17 at 8:47
6

Unfortunately, my taxes tend to be complicated

This. In and of itself, is a greater reason to keep the documents. The other answer offered a good summary, but keep in mind, if the IRS decides you fraudulently withheld claiming income, they can go back 7 years.

I bought a rental property in 1987, and sold it in 2016. In that case, keeping the returns seemed the right thing to do to have the paper trail for basis, else I could claim anything, and hope for the best.

I have all my tax returns since my first tax return, 1980. It's one drawer of a file cabinet. Not too great a burden.

  • Not sure how you are keeping it to just one drawer, but it does take up more space for me as I keep the assorted tax documents with each year. Still with additional documentation any line item in a audit should be easier to justify. – Morrison Chang Jan 24 '17 at 20:17
  • 1
    It's worth pointing out, that there is no real hard requirement to keep original paper copies of much of anything tax related. It does depend somewhat on the document itself. But, receipts especially should all be fine as digital copies only. Maybe someone who's gone thru a recent IRS audit could confirm this, but I highly doubt anything "original" is ever required. – maplemale Jan 24 '17 at 20:49

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .