Keeping old tax records may save you time and energy if you are ever audited or need to file an amended return. Previous year’s tax returns can also be used to prove your income when asking for a loan, such as a mortgage. In this post, we’ll go over how long you should keep tax returns and how to organize your documents in case you need them in the future.
How Long Should You Keep Your Current Tax Returns?
At the very least, you must keep your tax records for three years after the date you filed your return or two years after the day you paid the tax, whichever is later. 1. If you file your return before the deadline, it will be considered filed on the deadline. For example, if you file your tax return in February 2025, five years before the deadline of April 15, 2025, you must keep your tax records until at least April 15, 2030, five years after the return is due.
If you own a company that employs people, you must keep copies of employment tax records for at least four years after the tax is due or paid, whichever comes first. Creditors or insurance companies may require you to keep tax records for longer than the IRS requires.
Federal Tax Returns
Maintain records for a minimum of three years, as the IRS will typically audit your returns three years from the date of filing. The majority of audits, however, take place within two years of filing. Even three years later, you may find that you do not want to throw away those records. Additional returns may be audited if the IRS discovers a “substantial error,” though it will typically not go back more than six years. There is no statute of limitations on IRS audits if the IRS suspects tax fraud or if you failed to file a tax return for a particular year.
Consider this when disposing of documents that are no longer required to be maintained. Having those documents on hand can help you demonstrate that you followed the rules. And you can always contact the IRS for more information about your specific issue.
Three Years
Maintain three years’ worth of tax returns, along with supporting documents such as W-2s and 1099s. Additionally, you should keep copies of receipts, canceled checks, and credit card or bank records that support any claimed deductions or credits. Maintain property records for at least three years after you sell it, regardless of whether it is your primary residence, another piece of real estate, or investments such as stocks and bonds. Your records will aid you in determining whether you profited or lost money on the sale.
Six Years
If you underreported your income by more than 25% of the amount disclosed on your return, the IRS has six years to audit you. Similarly, if you underreport income from foreign financial assets by more than $5,000, the same regulation applies. If you underreported your income by more than 25% of the amount disclosed on your return, the IRS has six years to audit you. Similarly, if you underreport income from foreign financial assets by more than $5,000, the same regulation applies.
Seven or More Years
If you are writing off a loss due to bad debt or a worthless security, the IRS requires that you retain documents for seven years. The IRS has ten years to collect taxes after determining that you owe them.
State Tax Returns
While many states follow the IRS’s three- and six-year audit timelines, some states give themselves additional time to audit you. These rules have the potential to become quite complicated. For example, California has a four-year statute of limitations on audits and requires you to file an amended state return if the IRS adjusts your tax liability. 56. For information on the rules governing state tax audits, contact your state’s taxing authority. Maintain all records for the duration of the statute of limitations in your state.
Tips for Keeping Tax Returns Organized
It is irrelevant whether you maintain your tax records on paper or electronically. You simply need a system that enables you to locate your records quickly in the event of an emergency.
If you wish to keep paper copies of your tax returns, store them in a fire-and water-resistant safe. Consider creating a new folder for each tax year to organize paper records. Scanning your data and storing it electronically on an encrypted disc or in the cloud, on the other hand, is frequently a more secure and efficient option. Given the sensitivity of the information, ensure that it is protected with a complex and unique password and that two-factor authentication is enabled.