August 15, 2022
How long do I need to keep my tax records?
Every year, you gather together all of your financial documents to file your taxes. Then you probably store them away in a box for a filing cabinet – or digitally on your computer. This process goes on for years. Pretty soon, you have an entire archive of your financial records dating back decades.
Is it okay to throw these older records away? Or is it best to hold onto them – in case the IRS suddenly decides to investigate your tax return from 1984?
The answer depends on the type of records you have – and the associated period of limitations.
What is a period of limitations?
A period of limitations is the duration of time that the IRS expects you to keep certain records. For most records, that period is three years – starting from the date you file. If you filed your taxes early, then the clock starts from the date your taxes were due.
However, the three-year rule is just a general guideline. There are some notable exceptions to be aware of:
- Unreported income: If there was income that you should have reported and didn’t – and it constituted at least 25% of your total (gross) income for the year – then you should hold onto these records for six years.
- Employment tax: Hold onto any employment tax records for four years from the tax payment or due date – whichever is later.
- Worthless securities/bad debt: If you have worthless securities or bad debt and file a claim or loss for these, then you should keep these records for at least seven years.
- Lack of filing: If you didn’t file a tax return for any reason, you should hold onto your records from that year indefinitely.
- Fraudulent filing: If you submitted a fraudulent return, you should keep these records forever.
The above criteria refer to IRS guidelines only. Your insurance company or creditors may have separate requirements for how long you should keep your financial records. When in doubt, keeping records to support your claims is usually the safer move.