Tax records to keep or discard

Taxes » Tax Filing » Tax Records To Keep Or Discard

Basic records are documents that everybody should keep. When it comes to taxes, the supporting material is even more important because the IRS could come back years later with questions.

Although the IRS doesn't require you to keep your records in a particular way, it does urge taxpayers to keep them "in an orderly fashion" and in a safe place.

Basic records

FOR items concerning your ...KEEP as basic records ...
IncomeForm(s) W-2
Form(s) 1099
Bank statements
Brokerage statements
Form(s) K-1
ExpensesSales slips
Canceled checks or other proof of payment
HomeClosing statements
Purchase and sales invoices
Proof of payment
Insurance records
Form 2119 (if you sold a home before 1998)
InvestmentsBrokerage statements
Mutual fund statements
Form(s) 1099
Form(s) 2439

How long you should hang on to records

IF you ...THEN the period is ...
Owe additional tax and the next three situations below do not apply to you3 years
Do not report income that you should and it is more than 25 percent of the gross income shown on your return6 years
File a fraudulent returnNo limit
Do not file a returnNo limit
File a claim for credit or refund after you filed your returnLater of 3 years or 2 years after tax was paid
File a claim for a loss from worthless securities7 years

These time frames are for the material used to file your tax return. As for the filing itself, you should hang on to the actual Form 1040 and accompanying schedules and forms forever. This typically is not that much material and, if you prefer, you can convert it to a digital format and keep it stored on your computer, saving trees and space.

Time limit exceptions

Also keep in mind that while the basic IRS review period is three years, there are exceptions -- in the tax collector's favor.

If the agency suspects you've underreported your income or has questions about a worthless stock write-off, look out. When examiners believe you've shorted your income amount on a return by 25 percent or more, they can come asking questions up to six years later. Add another 12 months for queries about that bad investment.

Note, too, that if the IRS is convinced you submitted a fraudulent tax return, tax agents can come after you at any time. There is no statute of limitations on bad-faith filings.

More details on tax record keeping are available in IRS Publication 552, Recordkeeping for Individuals.


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