How Long Do You Need To Keep Records?

By: Gardiner Thomsen CPAsemail

Maybe it’s a good thing that the April 15th tax deadline and the urge to spring clean coincide. It feels good to throw out some of the financial records stuffing your filing cabinets. But before you head for the dumpster, make sure you’re not disposing of records you may need. You don’t want to be caught empty-handed if an IRS auditor contacts you. In general, you must keep records that support items shown on your individual tax return until the statute of limitations runs out -- generally three years from the due date of the return, or the date you filed, whichever is later. In most cases, the IRS can audit your return for three years. You can also file an amended return on Form 1040X during this time period if you missed a deduction, overlooked a credit or misreported income. So, does that mean you’re safe from an audit after three years? Not necessarily. There are exceptions. For example:
  • If the IRS has reason to believe your income was understated by 25 percent or more, the statute of limitations for an audit increases to six years.
  • If there is suspicion of fraud or you don’t file a tax return at all, there is no time limit for the IRS.

IMPORTANT:

Before tossing out financial documents, shred them thoroughly. Identity thieves can obtain account numbers and other data by rummaging through trash.

Basic Guidelines for keeping documents for individuals:

  • Completed tax returns: Hold onto copies of your finished tax returns forever, so you can prove to the IRS that you actually filed. Keep them a minimum of six years.
  • Backup records: Any written evidence that supports figures on your tax returns, should be kept for at least three years. Exception: There are some cases when taxpayers get more than the usual three years to file an amended return. You have up to seven years to take deductions for bad debts or worthless securities, so don’t toss out records that could result in refund claims for those items.
  • Real estate records: Keep these for as long as you own the property, plus three years after selling.
  • Securities: Maintain detailed records of purchases and sales. Keep these records for as long as you own the investments, plus the statute of limitations on the relevant tax returns.
  • IRAs: The IRS requires you to keep copies of Forms 8606, 5498 and 1099-R until all the money is withdrawn. It’s important keep all IRA records pertaining to contributions, withdrawals, and ownership documentation until the statute of limitations expires.
  • Issues affecting more than one year: Records that support figures affecting multiple years need to be saved until the deductions no longer have effect, plus seven years, according to IRS instructions.
TableThis abbreviated list of general record keeping guidelines is for tax purposes only. Insurance companies and creditors may have other requirements. If you would like more detailed information about this list of items, please contact us.