Tax Record Storage

how long is long enough?

Properly storing your tax records is crucial for maintaining compliance with federal regulations and ensuring your financial well-being. The question often arises: how long should you retain these important documents?

While the “three-year law” requires you to keep copies of tax returns and supporting documents for three years. Keep in mind that period is from the date you filed your original return or two years from the date you paid the tax, whichever is later. It is essential to consider additional factors that could extend this timeframe.

In some cases, the IRS may suspect significant underreported income or potential fraud, prompting them to conduct an audit that looks back six years. To stay on the safe side, it’s wise to adhere to the following guidelines. However, keep in mind that this is not an exhaustive list, and specific circumstances may warrant different retention periods.

Business records to keep

1 Year

Correspondence with Customers and Vendors, Duplicate Deposit Slips & Receiving Sheets (unless they support tax return entries) etc.

3 Years

Employee Personnel Records (after termination), Expired Insurance Policies, General Correspondence, etc.

4 Years

Payroll Records, Employment Tax Records, etc.

7 Years

Bank Statements and Reconciliations, Sales Records, Payroll Records, etc.

Forever

Audit Reports, Contracts, Deeds, General Ledgers, Tax Returns, etc.

personal records to keep

1 Year

Bank Statements, Paycheck Stubs, Canceled Checks, (Unless they support tax returns) etc.

3 Years

Credit Card Statements, Medical Bills, Health Care Insurance Records, Utility Records, etc.

7 Years

Supporting Documents for Tax Returns (W-2, 1099, receipts for deductions), Wage Garnishments, Tax-Related Bills, etc.

Forever

CPA Audit Reports, Legal Records, Income Tax Returns, etc.

Investment Trade Confirmations and Property Records:

Keep for as long as you own the asset, plus the relevant period of limitations after the sale.

special circumstances

Electronic Backups: It is highly recommended to create and maintain a backup set of your records electronically. This safeguards your data against loss or damage.

Secure Disposal: To protect yourself from identity theft, be sure to securely dispose of any records that contain sensitive personal information once the retention period has passed. Shredding is a highly effective method.

Records for Nontax Purposes: The IRS explicitly states that even when your records are no longer needed for tax purposes, you shouldn’t discard them without checking if you need to keep them for other reasons. For example, insurance companies or creditors may have their own, longer retention requirements.

Asset-Related Documents: Always retain records related to property you own, such as vehicle records, home improvement receipts, and warranties, for the duration of ownership and for several years after you sell or dispose of the asset, as these may be needed to determine your basis for tax purposes.

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