How Long to Hold Records
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When to Hold 'Em and When to Fold 'Em
By law, you must keep your tax records for as long as they are needed for the administration of the Internal Revenue Code, which means keeping the documents supporting the income and deductions shown on your tax return until the period of limitations for that return expires.
The Internal Revenue Service has 3 years from the date you filed your return to assess any additional taxes you owe. If you did not report all of your income and it is more than 25% of the gross income you reported on your return, the Internal Revenue Service has 6 years from the filing date of the return to assess additional taxes. If you failed to file a return or filed a fraudulent return, there is no statute of limitations preventing the assessment of additional taxes.
You have 3 years from the date you filed your return or 2 years from the date you paid the tax, whichever is later, to file a claim for credit or refund. If you filed your return prior to the due date, it is considered filed on the due date.
The following are some general rules for determining how long to maintain your important personal tax records:
- Keep Federal and State income tax returns for a minimum of 3-6 years.
- Maintain supporting documents such as W-2s, 1099s, cancelled checks, etc. for as long as the tax returns on which the information was reported.
- Keep residential property settlement records for home purchases and any records relating to improvements that were made for as long as you own your home. Continue to maintain these records if you sell your home for as long as the tax return filed for the year of sale.
- Maintain records on investment property you currently own and keep these records as long as you own the property. When you sell an investment, records will be used to determine whether you have a gain or loss and if the gain/loss is short term or long term. Maintain the records related to the sale of an investment with the tax return on which the sale was reported.
- Maintain nondeductible IRA contributions records indefinitely. They will be needed to determine the non-taxable portion of your required IRA distributions.
- Maintain records for depreciable property showing the purchase date, cost of the property, the date and cost of any improvements to the property, and a depreciation schedule showing the method used and the depreciation taken for all the years that you owned the property. Keep these records until you sell or dispose of the property with the tax return on which you report the sale.
- Maintain birth certificates, marriage licenses, divorce agreements, wills, copies of estate and gift tax returns, etc. in a permanent file. These are important documents that may be needed to verify information on a tax return.
Storing records. Store your records safely to prevent data loss or damage that renders them unusable. Scanning documents in your computer is acceptable by the Internal Revenue Service. However, for some records you need to maintain original documents, such as birth certificates, marriage licenses, etc. If you scan your records you will want to organize them in a way that makes them easy to retrieve and sort. PDF files are the most accepted file format. The media on which you store records needs to be protected just like paper products to avoid consequences of fire or flood, or any other event that may render the media unusable. Offsite storage may be a consideration. There are several free sources of off site storage via the internet. Archive the data to an external disc such as a DVD disc and store that in a safe place or fire proof safe.