If you’re like many Americans, you may have tax returns from a decade ago languishing in a filing cabinet. But you don’t need to hold on to tax documents for as long as you might think.
In almost all cases, you can shred or throw away any documents such as W-2s, 1099s or other forms or receipts three years after you file your tax return.
The IRS recommends keeping returns and other tax documents for three years—or two years from when you paid the tax, whichever is later. The IRS has a statute of limitations on conducting audits, and it’s limited to three years.
There are some exceptions. Keep documents for seven years on worthless stocks or bad loans you’ve made, says Nell Curtis, an accounting instructor at Milwaukee Area Technical College in Wisconsin.
“This is because the IRS has a longer statute of limitations for investigating those things and therefore could ask for supporting documentation beyond the standard three-year time frame,” she says.
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How Long Should I Keep My Tax Records?
Here’s how long you should maintain records, plus exceptions to the three-year rule.
Keep tax records for three years if:
- No fraud was committed and all income was reported.
- You filed a claim for a credit or refund after your return was filed.
Keep tax records for four years if:
- You maintain employment tax records. Keep these for at least four years after the date the tax comes due or is paid, whichever is later.
Keep tax records for six years if:
- You could have underreported your income by 25%. If this is the case, the IRS can review your taxes from up to six years ago.
Keep tax records for seven years if:
- You filed a claim for a loss from worthless securities (including loser stocks or bonds) or a bad debt.
Keep tax records indefinitely if:
- You purchased property, so you can show the amount that you originally paid for it.
- You do not file a return each year.
- You filed a fraudulent return.
The Pros and Cons of Storing Your Tax Records Digitally
Keeping tax records used to be more of a headache than it can be today, says Valrie Chambers, a certified public accountant (CPA) and an associate professor of taxation and accounting at Stetson University in DeLand, Florida.
She points out that many people have decluttered their offices and store their documents digitally now. Many institutions also issue digital copies of tax forms, further reducing your tax paper trail.
In addition to reducing paper, storing your tax records and receipts online or in the cloud can be convenient—but make sure your online storage provider encrypts your data so a cybercriminal can’t easily steal your Social Security number or other information that can easily identify you. You can protect your files and folders by adding a password.
“When it is feasible, scan documents, store and back them up,” Chambers says. “Dispose of the paper copy at will, as long as it’s not an original deed, title, valuation or original investment paperwork. Keep those (e-)documents secure.”
The IRS keeps a record of your tax returns from previous years. You can request a transcript online, by phone or by mail. The tax agency will ask for proof of identification, including your Social Security number.
Don’t Count on Your Accountant
If you use a CPA, don’t rely on your accountant to keep records for you. Taxpayers should maintain copies of tax returns and related documents themselves, Curtis says.
“CPAs who prepare returns are required to furnish copies of those returns to the client, so the client should always have their own copy,” she says. “The tax return is ultimately the responsibility of the taxpayer and not the preparer, and very often the IRS will only work directly with the taxpayer during an audit.”
While CPAs are also required to keep tax documents for three years, “Ultimately the onus is on the taxpayer to make sure tax forms and documents are available if the IRS requests them,” Curtis says. “Taxpayers should really think of the copies kept with their CPA as backup copies.”
Keeping your own records prevents any potential problems if your CPA sells their business, retires, loses their records in a fire or flood, or dies.
“In most cases, a scanned document on the cloud is as good as the original,” says Curtis. “It may be better because the ink won’t fade. Deeds, titles, stock and other investment authentications and valuations would be the exception to the scan rule.”
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