When you file your taxes, you generate a lot of paperwork. In addition to the actual forms you submit to the IRS, you may also have receipts and statements backing up the deductions and credits you claim and proving how much income you earned.
Holding onto all of these documents can be a hassle, but it's important in case the IRS has questions about your taxes in the future. After all, you don't want to be unable to prove the amount you earned or your eligibility for deductions if the IRS audits you.
So what's the timeline for keeping your returns and other tax papers? Here's what you need to know.
This Is How Long You Should Keep Tax Returns
There's a simple rule that applies the majority of the time. You should keep most documents for three years, according to the IRS.
However, there are some exceptions to that:
- If you own property, keep records related to it for the duration of your ownership. That way, you can correctly determine gains or losses when the property is sold as well as easily calculate depreciation, amortization or depletion to claim deductions.
- If you claim a loss from worthless securities, you should keep your records for seven years.
- If you claim a loss from bad debt, keep related documents for seven years.
- If you don't report all of the income you were supposed to, keep your information for six years if the unreported funds exceed 25% of the gross income you actually disclosed to the IRS.
- If you owe employment tax, keep your paperwork for four years from the later of the date you paid the taxes or the date they were due.
The reason for these timelines is simple: The IRS wants you to keep all your documents until the statute of limitations for actions on the tax returns runs out.
In most cases, you can amend your taxes -- or the IRS could try to collect more tax -- within three years. So until that time has passed, you need your forms, receipts, and statements.
How to Store Your Tax Documents
If you use online tax software to file your tax returns, the software will generally keep copies of your returns for you from year to year. However, you can't always count on being able to access those forms when you need them.
While it's unlikely that major tax-filing programs will just shut down without giving you time to obtain your records, you still don't want to be 100% dependent on them to fulfill your obligations to the IRS. As a result, it's a good idea to print a paper copy of your returns and keep them in a safe place in your home -- or at least download your forms to your own computer.
Your tax-filing software also won't keep receipts for your deductions or credits, nor will they keep things like bank and brokerage statements that the IRS may want to see. These documents should all be kept together, ideally with paper copies of your returns.
Keeping your returns and documents will both ensure you're ready to answer questions if the IRS comes calling and will also help you file your returns in later years when you can refer back to forms from the past.