Completing your tax return always feels like a major accomplishment. But while you may think you're done with that tax return once it's been filed with the IRS, you'd be wise to save your tax information and supporting records for at least three years after the fact.
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How many years must you keep old tax records?
It's natural to want to clear out your filing cabinets and free up more space, but when it comes to tax returns, you shouldn't be too quick to toss out old information. The IRS gets three years from each year's tax filing deadline to audit and reassess old returns. Because many people claim deductions that are tied to specific expenses, it's important to retain all supporting documentation in case you're ever asked to provide it down the line.
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Holding on to your old tax records can also work out in your favor. Just as the IRS gets three years to re-examine old tax returns, so, too, can individual tax filers claim refunds up to three years after the fact. If, for example, you find that you failed to claim a credit on an old return that would've given you a refund, you can amend that return using Form 1040X within three years of its original filing date, or within two years of the date you paid taxes for that return -- whichever is later.
That said, the IRS will advise you to keep your old tax returns and records even longer in the following situations:
- You failed to report income for a given year, and that amount exceeds 25% of the gross income shown on your return.
- You filed a fraudulent return.
- You didn't file a return for a given tax year.
Of course, those initial two scenarios are ones you should avoid to begin with, but if the first applies, be sure to retain your old records and returns for at least six years. If the second two situations apply, keep your tax forms and documents indefinitely.
What sort of tax records should you keep?
Along with copies of your actual returns, make sure to hold onto credit card bills, bank statements, receipts, mortgage interest statements, and 1099 forms or other records of outside income. If you use your vehicle for business, hang on to your mileage log for a minimum of three years. And if you're self-employed, keep all documents pertaining to business activities and expenses.
An easy way to keep tax documents forever
Because most of us only have so much physical storage space at our disposal, keeping tax records indefinitely might seem like a tall order. But since you never know when you might need to reference an old receipt or return, it pays to have perpetual access. One easy way to do this is to save all of your information electronically and store it on flash drives that you keep in a safe or safety deposit box. An equally easy option is to store your tax information online. This will give you the best of both worlds -- the data you need without the clutter.
If you are going to get rid of tax documents, be sure to do so carefully. Tax returns contain enough personal information to make identity theft a breeze for even the most novice of crooks, so take the time to shred those forms thoroughly before parting with them for good.
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