With tax season in the rearview mirror, many individuals and business owners wonder how long they should hold on to tax-related records — and what can safely be discarded. Different types of documents have different retention recommendations and requirements, and keeping records either too long or not long enough can create unnecessary risk or clutter. Understanding what to retain and for how long can help you stay organized while remaining prepared for potential tax issues.
Federal Tax Records
The statute of limitations for the IRS to audit your tax return is typically three years. It begins on the later of: 1) the due date for your tax return or 2) the date on which you file your taxes. So, the general rule for retaining federal tax records is at least three years from the later of those dates.
It’s a good idea to keep records that support items shown on your individual tax return until the three-year statute of limitations runs out. Examples of supporting documents include canceled checks and receipts for alimony payments, as well as records showing charitable contributions, mortgage interest payments and retirement plan contributions. You can also file an amended tax return during this time frame if, for example, you missed a deduction, overlooked a credit or misreported income.
Which records can you throw away today? You can generally discard records only after the applicable statute of limitations for that return has expired. For example, if you filed your 2022 return in April 2023, you’d typically retain those records until at least April 2026.
However, you’re not necessarily safe from an IRS audit after three years. There are some exceptions to the three-year rule. For instance, if the IRS has reason to believe your income was understated by 25% or more, the statute of limitations for an audit rises to six years. Or, if there’s suspicion of fraud or if you don’t file a tax return at all, there’s no time limit for the IRS to launch an inquiry.
Given these exceptions, it may be prudent to hold on to some records for longer than three years. For instance, most tax advisors recommend that you retain copies of your finished tax returns indefinitely to prove that you filed. Even if you don’t keep the returns indefinitely, hold on to them for at least six years after they’re due or filed, whichever is later.
In addition, records that support figures affecting multiple years, such as carryovers of charitable deductions or casualty losses from federal disasters, must be retained until the statute of limitations expires for the last year in which the deduction or carryover is claimed. There are also situations in which taxpayers have more than the usual three years to file an amended return. For example, 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.
State Tax Records
The previous guidelines are all geared toward complying with federal tax obligations. Ask your tax advisor how long you should keep your records for state tax purposes, because some states have different statutes of limitations for auditing tax returns.
Plus, if the IRS has audited you, states generally have the right to resolve their own issues related to that tax year within a year of the federal audit’s completion. So, hold on to all tax records related to an IRS audit for a year after it’s completed.
Bills and Receipts
In general, it’s OK to shred most bills — such as phone bills or credit card statements — when your payment clears your bank account or at year end. However, if a bill or receipt supports an item on your tax return, follow the tax guidance above.
If you buy a big-ticket item — such as jewelry, furniture or a computer — keep the bill for as long as you have the item. You never know if you’ll need to substantiate an insurance claim in the event of loss or damage.
Real Estate Records
Keep your real estate records for as long as you own the property, plus three years after you dispose of it and report the transaction on your tax return. Throughout ownership, keep records of the purchase, receipts for home improvements, relevant insurance claims and documents relating to refinancing.
These documents help prove your adjusted basis in the property, which is needed to compute any taxable gain at the time of sale. They can also support calculations for rental property or home office deductions.
Investment Account Statements
To accurately report taxable events involving stocks and bonds, you must maintain detailed records of purchases and sales. These records should include dates, quantities, prices, and dividend reinvestment and investment expenses, such as brokers’ fees. It’s a good idea to keep these records for as long as you own the investments — plus until the expiration of the statute of limitations for the relevant tax returns.
Likewise, the IRS requires you to keep copies of Forms 8606, 5498 and 1099-R until all the money is withdrawn from your IRAs. With Roth IRAs, it’s more important than ever to hold on to all IRA records pertaining to contributions and withdrawals in case you’re ever questioned.
If an account is closed, treat IRA records with the same rules that apply to stocks and bonds. Don’t dispose of any ownership documentation until the statute of limitations expires.
Save It or Shred It?
While it may be tempting to clear out old files, establishing a thoughtful records retention routine can help protect you or your business from an IRS inquiry or audit. With the proper records on hand, you’ll be ready to respond confidently if questions arise. Of course, that doesn’t mean you need to become a pack rat — old records take up physical or digital space and could lead to stolen records if not properly disposed of. For additional guidance on organizing, reviewing or discarding tax records, contact your tax advisor.
