How Long Do I Keep Tax Records?

Now that you have all of this great information about tax credits, deductions and other tax breaks, (since you’ve been reading our newsletter all year) you’re all set for tax filing. The key to supporting those claims is to keep great records.

Here are some tips to help you figure out which records to keep and how long to keep them:

• As a rule, keep your tax records and supporting documentation until the statute of limitations runs for filing returns or filing for refund. For most taxpayers, that means that you’ll want to keep those records for three years following the date of filing or the due date of your tax return, which ever is later. So, for example, if you file your 2014 tax return on Tax Day, April 15, 2015, you’ll want to keep those returns and those records until April 15, 2018.
• If you don’t report all of the income that you should report (generally, if you omit more than 25% of the gross income shown on your return), the statute of limitations is extended. You’ll want to keep those records for six years.
• If you file a clearly fraudulent return or if you don’t file a return at all, the statute of limitations never actually runs. In that event, you’ll want to hold onto your records, well, for forever (really, it’s much less work to simply file).
• Supporting documentation for your tax returns includes not only your forms W-2 and 1099 but also bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
• If you claim depreciation, amortization, or depletion deductions, you’ll want to keep related records for as long as you own the underlying property. That includes deeds, titles and cost basis records. Similarly, if you claim special deductions and credits, you may need to keep your records a little longer than normal (for example, if you file a claim for a loss from worthless securities or bad debt deduction, you should keep those records for 7 years).
• If you have employees, including household employees, keep your employment tax records for at least four years after the date that payroll taxes become due or is paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.
• You’ll want to keep your records organized – I recommend arranging them by year – and store them in a safe place.

To save space (and quite possibly, your marriage and/or sanity), you can scan your records and store them electronically. The IRS has accepted scanned receipts since 1997, a policy that was memorialized by Rev. Proc. 97-22 (downloads as a pdf). You just need to ensure that your scanned or electronic receipts are as accurate as your paper records and you must be able to index, store, preserve, retrieve, and reproduce the records. In other words, you need to have your records organized.