When tax season is over and done with -- your return processed, your refund on its way (or your check to the IRS in the mail) -- you might be tempted to burn all the documentation that went with it, in a kind of cleansing ceremony to start a new tax year, clean and happy.
Don't do that.
Even if you're certain that you totally and utterly nailed that tax return -- reporting the tiniest speck of earnings and deducting every last charitable contribution -- the fact remains that someone might want to double-check it. "Someone," of course, being the IRS. And the IRS, while accommodating to lots of needs, isn't going to comb through the pile of ashes in your fireplace.
A lot of people don't realize that even after getting a return accepted -- and a refund to boot -- the IRS still has three years to audit your filing. And if IRS agents find something, they can extend that to a full six years [source: IRS].
For that reason alone, it's prudent to keep your tax records for at least three years. And remember that "tax records" doesn't just mean your return. That means receipts, statements from banks or mortgage lenders -- heck, even that utility bill you wrote off for the home office deduction.
You might want to consider keeping your records even longer, if certain situations apply to you. If you didn't file a return (or filed a fraudulent one), there is no statute of limitations for audits. The IRS will find you whenever it pleases, so you better have the information ready. If you claimed depreciation on anything, you'll definitely want to keep that receipt or bill for all the years you're claiming it (plus the extra three, to be safe). If you have employees, keep records for four years after payroll taxes are due or paid [source: Phillips Erb]. As a rule of thumb, it's safe to say that if there's anything on your return that might elicit interest from the government, you should keep the documentation for three years (or longer).
Now keep in mind that you might want to hold on to some records for close to forever. If you sell your home, for instance, the IRS might want to see records of your original purchase, costs for repairs and any statements you might have during an audit [source: Lee]. Best to keep those around as long as possible. Records on assets like stocks and bonds might be prudent to save for as long as you have them, as well. However, after selling them, you probably only have to keep the paperwork for a year or so.
So don't burn that pile of paperwork. Keep your records for a judicious amount of time. Three years will probably keep you safe enough, in most circumstances.
- Internal Revenue Service (IRS). "How long should I keep records?" Sept. 5, 2014. (Oct. 27, 2014) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-long-should-I-keep-records
- Internal Revenue Service (IRS). "IRS Audit FAQs." Oct. 14, 2014. (Oct. 27, 2014) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/IRS-Audit-FAQs
- Lee, Bonnie. "How long should I keep my tax records?" FoxBusiness. Oct. 2, 2014. (Oct. 27, 2014) http://www.foxbusiness.com/personal-finance/2014/10/02/how-long-should-keep-my-tax-records/
- Phillips Erb, Kelly. "Now that tax day has passed, how long should you keep those tax and financial records?" Forbes. April 26, 2014. (Oct. 27, 2014) http://www.forbes.com/sites/kellyphillipserb/2014/04/26/now-that-tax-day-has-passed-how-long-should-you-keep-those-tax-financial-records/
- TurboTax. "How long do federal and state tax returns need to be kept?" Intuit. 2014. (Oct. 27, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/How-Long-Do-Federal-and-State-Tax-Returns-Need-to-Be-Kept--/INF14249.html