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How Long Do You Have to Keep Your Tax Records?

If you’ve started noticing stacks of old receipts, financial statements, and tax records piling up in random corners and drawers in your home, you’re not alone. You’re also not alone if you’ve wondered, “how many years of my taxes do I need to keep?” searched for an answer and felt more confused than before.

It’s true. Your tax documents and records fit into the category of things you should keep. After a few years, all your files and records will start to pile up. It’s a lot of vital and personal information, so how do you know when it’s safe to shred and shed those old tax returns?Here are some tips and guidelines to help you determine which tax records should be safely filed away and which ones are ready to be shredded and tossed out.

How Many Years of Tax Records Do I Need to Keep?

The tax preparation materials you keep vary depending on your situation. Because there are many different types of materials that may be needed, there isn’t one single answer to the question, “How long should I keep my tax records?” However, the IRS has outlined the following period of limitations as a guide for how long you should hold onto those important tax materials.

Records to keep for three years minimum 

Retain records for three years from the date you filed your original return, or two years from the date you paid the tax, whichever is later. Along with the tax return itself, documents that should be kept for three years include those detailing eligible expenses for withdrawals from health savings accounts. Also, hold onto documents that disclose contributions to tax-deductible retirement savings plans, such as a traditional IRA.

Records to keep for more than three years
  1. Preserve records for six years if you did not report income that you should have. The IRS is allowed up to six years to initiate an audit if you failed to report at least 25% of your income.
  2. Store records indefinitely if you did not file a return because there is no statute of limitations for the IRS to take action against you—the IRS may be the best bill collector in the U.S.
  3. Save employment tax records for at least four years after the tax becomes due or is paid, whichever is later. 

What Does This Outline Mean?

The number of years you must store your tax papers depends on the action, expense, or event the document records. It really goes on a case-by-case basis, which makes it hard to determine, especially for the majority of us who only file taxes once a year.

Because it can be difficult to know exactly which documents you will need in the future, and because every person’s tax return is different, there isn’t one set of guidelines to help  determine which documents are vital for you to keep.

As a general rule of thumb, the IRS recommends following the period of limitations outlined above to avoid getting rid of any vital documents too early. Keep them organized and in a safe place. You may need them to help prepare your taxes in the future or even for other financial reasons.

The bottom line is that you should keep all of your tax records for at least three years and depending on your situation and what you were required to file over the past few years, you may need to keep them even longer. We also suggest visiting IRS.gov for a list of commonly asked questions and answers. 

PRO TIP  

Create a simple system to organize and store these types of documents throughout the year to save time and money on your tax preparations.

Here’s what you should keep:

  • Income from wages, dividends, interest or business: Forms W-2, 1099, and bank statements
  • Deductions and credits (childcare expenses, medical and dental expenses, business use of home, vehicle sales tax, alimony): Receipts, invoices, mileage logs, bank statements, and canceled checks

How to Store the Files You Decide to Keep?

While keeping a copy of your tax returns and supporting documents is important, so is keeping them safe and secure. Why? Because these documents contain sensitive data, and if stolen, lost, or made public, could lead to identity theft and more. 

As a rule of thumb, storing sensitive information like a Social Security number or bank account statements or numbers, should be kept in a secure place where only you have access. 

Here are a few tips to help you safely store those vital documents and protect them from theft:

  • For paper records, keep these documents under lock and key if possible and in a secure location, such as a desk drawer with a lock, or a safe.
  • For electronic records, make sure you have a backup or external hard drive on hand in case your computer crashes. Make sure these files are encrypted, which is the same thing as being under lock and key but just on a computer! Purchasing an external hard drive or the right software to ensure the files’ security may cost a little extra, but when it comes to protecting vital, personal, and private information, it’s worth it.

When you do decide it’s time to get rid of the tax reports you know you will no longer need, make sure you shred them. Tax returns contain sensitive information, so make sure you don’t just toss these in the trash. 

When it comes time to prepare your taxes, our Sun Loan representatives are here to answer any questions you may have and help you get the money you deserve. Contact our office or visit a Sun Loan location near you today.