How Long Should You Keep Tax Documents?

Many people are clueless when it comes to knowing how long they should keep copies of important tax-related documents.  Some choose to throw everything away after tax season is over, while others hang on to every document for decades.  Neither of these two extremes is necessary, though.

The IRS recommendation for the length of time to hold onto tax documents varies based on what type of document is involved.  The IRS can audit you up to seven years after you file if they suspect that you failed to report 25% or more of your income.  You have three years to file an amended return if you realize that you made a mistake and should have received a larger refund. Thus, you will want to keep copies of your completed tax returns for at least seven years, as well as everything you used in preparing your taxes, especially documents related to itemized deductions.  It is important to note that if you file a fraudulent return or if you fail to file, there is no limit on when the IRS can initiate an audit.

The following is a list of basic records that you should keep for the seven-year recommendation:

  • W-2 and 1099 forms (once you receive your W-2 for the year, you can get rid of monthly pay stubs)
  • Year-end Bank and Brokerage statements
  • Mutual fund statements
  • Forms showing Reinvested dividends and Capital gains distributions
  • Sales slips, Invoices, and Receipts showing expenses
  • Proof of payment of expenses (such as canceled checks)
  • Documents related to purchasing a house (Closing statement, Sales invoice, Proof of payment)
  • Receipts for major home improvements
  • Home insurance records

**You should hold onto records showing stock and fund purchases for as long as the investments are in your name; you will need this documentation when you sell the stock or fund.

Before you throw away everything from 2004 and earlier, you should make sure there is no other reason you should keep certain documents.  For example, some insurance companies may require you to keep documentation for longer than seven years.  If you are hesitant to throw anything away, you may wish to invest in a scanner in order to keep digital copies of all your tax-related documents.  Just be sure to store these digital copies in a save place and keep a backup copy at all times.

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