Tax returns and documents related items on the tax return are important to keep. From a tax perspective, such documents may be needed in the event that the IRS's wants to review information relating to the tax return. Tax returns come in handy for other purposes, such as to verify income when applying for a loan from a bank.
Generally speaking, tax returns and their related documents should be retained for at least as long as the IRS or a state tax department is permitted to audit the return. This period of time is referred to as the statute of limitations for audits. For federal audits, that statute of limitations is three years from the date the tax return was actually filed, or three years from the April 15th deadline if the return was filed before the deadline. At the state level, each state has different statute of limitations on audits. Many states follow the federal time period of three years, while some states have longer time periods. Montana, for example, has a five year time period for audits.
Along with a copy of your tax return, keep any documents that are related to the income or deductions or credits claimed on the return. This would include copies of Form W-2, Form 1099, acknowledgement letters for charitable donations, and receipts for tax-deductible expenses. Self-employed persons should also keep copies of any accounting records (such as profit and loss statements, or a backup of their data from accounting software) as well as copies of bank statements.
Besides tax returns, taxpayers will also want to keep keep any documents about real estate, business assets, stocks and bonds, and other assets you own for as long as you own the asset, and then for another 3 years (or longer, depending on your state) after the asset is sold. These records will be needed for calculating cost basis and gain or loss when the asset is sold.
Tax returns and their related documents can be maintained in a number of different ways, including:
- Paper files organized by year, with tax returns and related documents in the same folder.
- Scan your documents, and store on a hard drive, flash drive or CD-ROM.
- Use an accordion file or box for each year.
- Keep separate files for your long-term assets.
- Make CD-ROMs or flash drives of your most valuable documents, and put these in a safe deposit box.
Before you discarding old tax documents, make these final checks:
Check your Social Security statement and compare your earnings to the information on your W2s and tax returns. If you haven't received your Social Security statement, you can request from for the Social Security Administration. Every so often, income from your W2 or self-employment income from your tax return doesn't show up on your Social Security Statement. The SSA has procedures in place to help you correct an error in your record of earnings. Do this before discarding any documents relating to your earned income, such as Form W-2 or Schedule C.
Check the date you filed your tax return. Make sure it has been at least three years after the tax return has been filed before discarding a tax return.
Call the IRS and ask for a "Record of Account" for a particular tax year. Your accountant can do this for you, and help you read this IRS printout. Sometimes, adjustments have been made to a tax return, and either you didn't know about it, or you forgot about it. This is an opportunity to make sure any IRS problems for a tax year have been settled before you throw away your important documentation.
Scan your tax documents and save them to a CD-ROM. Having scanned copies of your tax documents takes less space than paper files.
Shred your old tax and financial documents. This will prevent anyone from gaining access to your identifying information.
Additional information from the IRS: Publication 552, Recordkeeping for Individuals.