How Long Should I Keep My Tax Records?

May 9, 2019

Now that you are filing away your business or personal tax records for the year, you may be wondering just how long you need to keep those records. After all, your filing cabinets and storage boxes can only hold so much stuff, right?

The IRS offers some specific guidance on this subject. Here’s a look at those recommendations and some considerations that go along with deciding how long you should keep your tax records.

What’s a Period of Limitations?

Taxpayer records include not just your tax forms but all documentation to support each item of income, deduction, or credit shown on your return. The IRS recommends that you keep this information until the period of limitations for that tax return runs out.

The period of limitations is the time during which you are allowed to amend your tax return to claim a credit or refund, or the time when the IRS can assess additional tax. The recommendations below reflect these periods of limitation.

If You Have Filed Tax Forms Accurately and On Time

The IRS-recommended retention periods are shorter for taxpayers who have filed their tax forms accurately and on time. If you have done so, the IRS says:

  • You should generally keep all records relating to your return for 3 years
  • If you filed a claim for credit or refund after you file a return, you should 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 filed a claim for a loss from worthless securities or bad debt deduction, you should keep your records for 7 years
  • You should keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later

The IRS claims that they typically limit their audits of taxpayer returns to those filed within the last 3 years. But they also say that they may go back as far as 6 years or more if they identify a substantial error. If storage space isn’t a problem, you might consider retaining your records up to 7 years out of an abundance of caution.

If You Have Filed Incompletely, Falsely, or Not At All

The IRS urges taxpayers who have filed incomplete or false tax returns, or who have not filed at all, to retain records for longer periods of time. If you fit any of these categories, the IRS says:

  • If you did not report income that you should have, and it’s more than 25% of the gross income shown on your return, you should keep records for 6 years
  • If you filed a fraudulent return, you should keep records indefinitely
  • If you didn’t file a return at all, you should keep records indefinitely

Fraud is a serious IRS issue, and you won’t do yourself any favors by continuing to ignore it. Similarly, taking care of an incomplete filing or non-filing isn’t something you want to put off. Penalties and interest accrue monthly and can add up to large sums.

Other Considerations

If you are unable to pay right away, the IRS can set up a payment plan for you that allows you to pay off your debt gradually over time. Whatever you do, don’t throw out your records before your period of limitations expires.

A knowledgeable tax accountant can be invaluable when it comes to clearing up tax return issues and handling audits. If you are wrongly billed – yes, the IRS does occasionally make mistakes – an accountant can step in and represent you in your IRS dealings.

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