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This article was fact-checked by our editors and Jennifer Samuel, senior product specialist for Credit Karma Tax. It has been updated for the 2020 tax year.
No matter how eager you are to streamline your life by clearing out clutter, there’s a good chance you’ll think twice about throwing out tax records.
What do you do with all the tax forms — whether paper or digital — when tax season ends? Holding onto those forms probably seems like a smart idea to a lot of people — a 2020 IRS survey says that 62% of taxpayers are so fearful of an audit that they wouldn’t even think of cheating on their taxes.
And you should keep tax records — at least for a while. In some situations, you may even want to keep some forms forever.
- Why should you keep tax records?
- What records do you need to keep?
- How long should you keep records?
- But some experts say you might want to keep documents longer
- Should you keep paper or digital copies?
- Dispose of these documents carefully
Why should you keep tax records?
First, why do you have to keep tax records at all? Once tax season is over, you might not even want to think about taxes — let alone deal with tax forms — for another year.
For some people, the answer is likely fear of being audited. If the IRS decides to audit you, you’ll need your tax records to answer their questions.
“Tax documents can include receipts, bank statements, 1099s and more,” says Dr. Cozette M. White, founder of My Financial Home Enterprises in Oxnard, California. “If you’re one of the unlucky few to be audited, these records will be vital to fending off the IRS.”
But fear of an audit isn’t the only reason to hold on to your tax records.
After you file your tax return, the IRS could notify you that they’ve found an error on your return. They could have a question about information in your return. Or, you could discover you made a mistake on your return and need to file an amendment. You might even need information from a past year’s return in order to file this year’s return.
Having access to your tax documents makes it easier to deal with these situations.
What records do you need to keep?
There’s a long list of tax records to keep, but the specifics of which ones you should store and for how long depend upon your situation.
The IRS recommends keeping any documents that support income you’re reporting or any deduction or credit you’re claiming until the period of limitations — the time limit for the IRS to take any action — for that tax return expires.
Some of the records you should keep, according to Josh Zimmelman, owner of Westwood Tax & Consulting in New York, include …
- Proof of income, including W-2s and 1099s, bank and brokerage statements, K-1 forms and spousal-support payment records
- General financial records, like bills and invoices, credit card statements, mileage logs, cancelled checks and other proof-of-payment necessary to support deductions and credits you claim
- Financial records related to real property, including paperwork from the purchase or sale of a home as well as all documents associated with the costs of buying, selling or managing rental properties
- Investment records, including those related to stock transactions, IRAs and other retirement accounts
If in doubt, it’s often better to keep records rather than toss them.
“Hopefully, you’ll never need to show your tax records to the IRS,” Dr. White says. “But, if you’re audited, your tax records could keep your feet out of the fire.”
How long should you keep records?
For most situations, the IRS recommends you keep tax records for three years after filing. The IRS recommends this time frame because that’s the amount of time you have to amend your return to claim additional eligible credits or refunds — and it’s typically the amount of time the IRS has to audit you to try to collect any additional taxes owed.
However, in certain situations the IRS advises you should keep records longer.
- Seven years if you file a loss claim from worthless securities or reduction of bad debt
- Six years if you fail to report income that you should have, but only if that income was more than 25% of the gross income you reported on your return
- Four years for employment tax records
- Forever if you don’t file a return
- Forever if you file a fraudulent return
“Keep in mind if you filed an extension, the IRS will have three years from the date you submitted the return,” Dr. White warns.
The IRS recommends keeping your paperwork for longer in these situations because there’s an extended time limit for the IRS to take action. If you don’t report more than 25% of gross income, for example, the IRS has six years to initiate legal action to try to collect.
Keeping tax documents the entire time you own real property — and for three years after — is also important to prove taxable gains or deductible losses when selling the property, or to make sure you correctly calculate depreciation, amortization or depletion deductions. You’ll want to keep these records for this three-year period after selling because of the three-year time limit the IRS has to audit you after you’ve filed a return that includes information about your property.
But some experts say you might want to keep documents longer
While the IRS suggests most taxpayers only need to keep basic records for three years, there’s an argument for holding onto these documents for at least seven years — a year longer than the six-year statute of limitations in cases where income was substantially underreported.
“If your tax return looks like the great American novel, the running of the three-year audit period may not save you,” Dr. White says.
She explains that because the IRS has six years to go after you if you substantially under-reported income, you may need your records to prove you didn’t underreport your income by more than 25% .
“If you think you’re potentially at risk of an audit, you should keep your documents longer than usual,” Zimmelman advises. “Being at risk for an audit doesn’t mean you’re doing anything wrong. It just means that your tax situation might raise a few red flags that require the IRS to take a closer look.”
You should also keep copies of your tax returns forever so you can prove you filed your taxes if the IRS says you didn’t, as there’s no time limit on the IRS bringing a case for failure to file.
“The IRS has been known to lose or misplace tax returns,” Dr. White warns. “The IRS receives millions of returns over a three-month period and lost returns are inevitable. So how do you protect yourself? You keep copies of every single tax return.”
Should you keep paper or digital copies?
If you’ve efiled your returns, you have the right to get paper copies — and you should. The IRS will provide free copies of tax return information for the previous three years. You may also be able to print copies of past tax forms from software you used to complete your taxes.
“Save your hard copies of your tax documents and financial papers,” Zimmelman advises.
However, while the IRS or tax software can provide copies of returns you filed, they don’t have copies of bank statements, receipts, real estate transactions, or other paperwork needed to prove income and show eligibility for credits and deductions.
Obtaining paper copies of tax forms — and keeping copies of other paperwork — is important so that you’re in control of the information. Online tax programs come and go and may not be around in future years. There are also differences in how long programs store tax information, and some programs charge fees to store documents.
Dr. White recommends getting a filing cabinet to keep copies of paperwork — you can find fireproof ones just in case. And Zimmelman suggests organizing the documents first by year, and then by category. This would mean keeping all your transportation receipts together, all your documentation of charitable donations grouped, and so on.
You can also make digital copies of your documents and store them so you’ll have a backup.
Dispose of these documents carefully
When the time to toss your tax returns finally arrives, it’s imperative you dispose of the documents properly.
“Shred all paperwork so you don’t put yourself at risk for identity theft,” Zimmelman advises.
Tax documents contain lots of sensitive information, including your Social Security number, bank statements, and brokerage account statements. If this information falls into the wrong hands, you are vulnerable to financial loss.
You might dream of a paperless world, a completely clutter-free lifestyle, and never having to think of your 2019 tax return again after you file it. But in the real world, it’s important to hold on to tax documents for at least a few years, and maybe longer.
Having copies of important tax records — as well as your past returns — can help you cope with an IRS audit or letter and ensure you’re equipped to file an amended return if you need to. Your past tax information will also be helpful in filing future returns.
And finally, knowing you have documentation for everything you put on your tax return helps give you some peace of mind.
Jennifer Samuel, senior tax product specialist for Credit Karma Tax®, has more than a decade of experience in the tax preparation industry, including work as a tax analyst and tax preparation professional. She holds a bachelor’s degree in accounting from Saint Leo University. You can find her on LinkedIn.