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How Long to Keep Tax Records and How to Dispose of Them

Tax Information Tax Planning
A man sitting at his desk studying tax records

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Tax documents can take up a lot of space in your filing cabinet, but many of us are wary of throwing them away. If fears of a tax audit or identity theft live rent-free in your head, don’t let them get to you. You only need to keep your tax records for so long, and there are ways to dispose of them securely when the time comes for your tax filing.

How long should I keep my tax return documents?

You should keep your tax documents per the IRS’s period of limitations. This is typically three years, which is the amount of time you are allowed to amend your return, and the IRS is allowed to assess additional tax.

However, the IRS statute of limitations is sometimes longer than three years. Because of this, the IRS recommends keeping tax records for different lengths of time depending on your tax situation:

  • In most cases, you should keep your tax records for three years from the date you initially filed the income tax return or two years from the date you paid the tax (whichever is later). This includes any documents related to potential tax deductions. Additionally, it’s important to keep records organized and readily accessible in case of IRS inquiries.
  • Keep your tax records for six years if you didn’t report income that you should have reported, and this income makes up more than 25 percent of the gross income listed on your tax return.
  • Keep tax records for seven years if you filed a claim for a loss from worthless securities (like stocks) or bad debt deduction.
  • Keep tax records indefinitely if you didn’t file a tax return, or you filed a fraudulent return.

Are there any specific tax documents I should keep for a longer period?

There are some exceptions to the above rules for certain types of tax documents:

  • You should keep employment tax records for at least four years after the date that you paid the tax or after the date that the tax was due (whichever is later).
  • You should keep property records (real estate, stocks, personal items, etc.) until the statute of limitations expires for the year in which you disposed of the property.
  • You may need to keep other nontax records longer in compliance with whoever sent you the form — for example, a creditor or insurance company may advise that you keep their records longer than the IRS does.

How should I organize my tax records?

You are free to practice whatever form of recordkeeping works best for you. Just be sure you can easily find all the materials you may need in case the IRS asks for documentation.

If you prefer to keep hard copies of your tax records, the best way to store them is in a locked, fireproof safe with your other important documents. This ensures they are well-organized and ready for tax preparation.

On the other hand, if you prefer digital recordkeeping to physical files, the IRS is also fine with that. The IRS should accept them without issue as long as the digital copies are legible. You will, however, want to make sure that you keep digital records on file until the statute of limitations is up. And be sure to take extra precautions to safeguard your information from hackers.

Remember that both digital and paper files have advantages and disadvantages. Be sure to store them securely. You may even consider storing both digital and hard copies of your files for tax purposes.

Can I access my old tax returns in TaxAct®?

Yes, with TaxAct, you can access prior year returns for free up to seven years. That feature of our tax software makes digital recordkeeping easy! Plus, having access to past returns can be valuable, especially if you need to claim a tax refund or review past financial data.

What is the best way to dispose of confidential tax documents?

Once you’ve decided you no longer need hard copies of your tax forms and supporting documentation, it’s time to start thinking about how to get rid of them. You don’t want to toss sensitive information in the trash for someone to use for identity theft potentially, so how should you dispose of confidential documents?

We know not everyone has the convenience of a shredder sitting in their home, but shredding is one of the best ways to destroy private documents. If you don’t have a shredder, some companies offer secure document destruction at a reasonable price for quick and easy disposal.

The bottom line

Remember, though it may be tempting to throw all old tax records in a drawer once you have filed for the year, you can save yourself a lot of effort and headaches by filing your tax records properly. This way, if you are ever audited, you can produce the required documents in a timely manner, giving you one less thing to stress about. By staying organized now, you are already one step ahead for next year’s taxes.

And while you don’t need to hold onto your tax documents forever, disposing of them is not as simple as throwing them in the trash. To protect yourself from identity theft, make sure to destroy tax documents safely and securely. Engaging in proper tax planning can also help you anticipate and manage your tax obligations more effectively.

 

This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.

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