How Long To Keep Tax Records


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Do You Have To Keep Evidence For Everything

How Long To Keep Tax Records?

Thankfully, no. If you have an expense that is less than $75, you dont need to have a receipt to support it. You also dont need to keep documentation if its for a transportation expense and documentation isnt easy to get. And if you have meals and lodging expenses that you report under an accountable plan for a per-diem allowance, you wont need to keep your receipts.

Its still a good idea to hold onto backup documentation if you can because if you do get audited, the IRS will probably want more info.

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Do I Need To Hang On To Paper Bank Statements

Whether or not you need to hang on to your business paper bank statements is entirely dependent on your business and what your needs are. If you’re required to keep hard copies of your bank statements for tax or accounting purposes, then you’ll need to hang on to them. However, if you’re comfortable keeping electronic copies of your bank statements, then you can go ahead and shred the paper copies. We recommend seeking professional advice for your personal business needs from a certified public accountant or tax attorney.

Read Also: Does Fl Have State Income Tax

How Long Should Businesses Keep Tax Returns And Other Business Tax Records

Fortunately, the IRS cannot assess additional tax once a certain periodcalled the statute of limitationshas passed. The federal income tax statute of limitations equals:

  • three years from the filing dateor the due date, if laterfor most tax returns
  • four years after the tax becomes dueor gets paid, if laterfor employment tax returns
  • six years from the filing dateor the due date, if laterfor tax returns that underreport gross income by more than 25%
  • seven years from the filing dateor the due date, if laterof the related tax returns for losses from worthless securities or bad debt
  • Forever for unfiled or fraudulent tax returns

Some state taxing authorities follow IRS rules, while others use different periods. Creditors and investors may have their own requirements.

Creating different retention policies for each possible scenario may prove impractical. Retaining tax returns and other records for seven yearsstarting from the later of the filing date and due date of the related tax returnoffers a convenient rule of thumb. This covers almost all documents for businesses that file all required tax returns without fraud.

How Long To Keep Tax Records And Other Documents

How Long to Keep Tax Records and More: A Checklist

You’ll also want to safely keep other documents for the right amount of time

Many Americans find the tax season stressful, but this years filing process could be worse than ever.

As a result of the pandemic, the IRS faces a huge processing backlog, according to a January 2022 National Taxpayer Advocate report, while a shortage of staff means that many taxpayer queries remain unanswered. A more recent report found that the backlog had ballooned to nearly 24 million returns for the 2021 tax year.

Given the difficulties of dealing with the IRS, this is not a good time to throw away any tax-related paperwork, says Dan Herron, a CPA and financial planner in San Luis Obispo, Calif.

So its crucial that you keep track of tax forms and other documents that come in. Many Americans, for example, should keep an eye out for a new IRS form, Letter 6419, which details how much you received in expanded Child Tax Credit payments in 2021.

You should also be sure that your tax documents are well-organized. Greg McBride, chief financial analyst at Bankrate, suggests that you put all your W-2 forms together in one place, and do the same for your 1099 forms and brokerage account statements.

If you havent yet started on your taxes, getting your paperwork in order will reduce stress and make you more efficient, McBride says.

Recommended Reading: Loudoun County Personal Property Taxes

How Long To Keep Your Current Records

How long do you need to keep all these documents? That varies based on a few factors. While the timelines below reflect federal guidelines, its important to note that your state tax authority might operate with different standards.

Even if you dont need to retain some records for federal tax purposes, you might want to save them for other reasons, says Alison Flores, principal tax research analyst, The Tax Institute at H& R Block. Your state may have a longer time to audit. For example, California generally has four years to audit a state income tax return. Also, an insurance company or creditor may have different record-keeping requirements.

How Long Should A Small Business Keep Records

It’s that time of year again! Tax filing season has come to a close and business tax returns have been filed. For many businesses, this is also a time to purge old files and business tax records. While it may be tempting to simply throw away old records and business documents, it’s important to be mindful of the different laws and regulations surrounding document retention. Depending on the type of business, there may be certain records that must be kept for a minimum number of years. In other cases, there may be no legal obligation to keep records at all. However, even in these situations, it’s often best to err on the side of caution and retain documents and keep business tax records for a longer period of time. By taking the time to understand the different laws and regulations surrounding document retention and business tax records, businesses can ensure that they are in compliance with all applicable laws and minimize the risk of liability. Here are some things to keep in mind when asking how long to keep business records.

Recommended Reading: Income Tax Comparison By State

Keep Your Tax Records For 6 Years If You Omitted Some Income

The IRS requires you to keep your tax records for six years if you underreport income that accounts for more than 25% of the gross income.

This extended time requirement won’t apply if you have a cut-and-dried tax return with straightforward W2 income. But if you have a complicated return that intentionally underreports income, then the IRS has six years to check the records and assess more tax.

Quick tip: The IRS receives information from a variety of sources about your income and uses an automated system to spot potential discrepancies. If there is a potential discrepancy, a tax examiner will review the document further. Depending on what they find, the IRS may assess additional taxes.

How Long Should You Keep Business Tax Records

How long should you keep tax records? has some great traps to fall into

Keep business income tax returns and supporting documents for at least seven years from the tax year of the return. The IRS can audit your return and you can amend your return to claim additional credits for a period that varies from three to seven years from the date you first filed. But it’s a good idea to use seven years as your guide for keeping these documents.

If you don’t file a return at all, the IRS can come after your business at any time.

Examples of supporting documents include:

  • profit and loss statements
  • financial statements

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How To Store Records Safely

Now that you know how long you should hold onto relevant documents, how do you do so securely? If youre not careful, these records could get into the wrong hands and create a fraud situation. Try these tips when handling any critical documents, including your own:

  • Use specific filing folders or envelopes specifically for these tax documents
  • Label everything with your loved ones name
  • Store these documents in a safe, preferably fireproof
  • Check each year to see what is no longer needed
  • Use a secure cloud storage service to save digital records

If you choose to use a digital storage option, pay close attention to security. Cloud safety has come a long way in recent years, but no digital storage solution is perfect. Always read the user agreement on these systems, and dont be afraid to upgrade for a more secure solution. Pay close attention to user permissions and who you share these documents with. Finally, dont forget to back up your storage regularly.

Finally, when disposing of your physical documents, do so safely. Always shred important papers to keep them from getting in the wrong hands, like an identity thief or another type of criminal.

Period Of Limitations That Apply To Income Tax Returns

  • Keep records for 3 years if situations , , and below do not apply to you.
  • Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
  • Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
  • Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
  • Keep records indefinitely if you do not file a return.
  • Keep records indefinitely if you file a fraudulent return.
  • Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
  • The following questions should be applied to each record as you decide whether to keep a document or throw it away.

    Recommended Reading: File Taxes With Credit Karma

    Regular Statements Pay Stubs

    Keep either a digital or hard copy of your monthly bank and credit card statements for the last year. Its a good idea to keep your digital copies stored online if you choose to go paperless. You should also hold on to pay stubs so that you can use them to verify the accuracy of your Form W-2 when tax season arrives.

    What Do Income Tax Records Include


    Even if you werent required to attach information slips, receipts, and expenses at the time you filed or e-filed, theyre an essential part of your tax record. In addition to your tax returns, heres a laundry list of the supporting documents youll need to produce if the CRA comes calling. Be sure to hang onto every scrap that applies.

    Read Also: Free Amended Tax Return 2020

    What To Do When The Statute Of Limitations Is Up

    As tempting as it may be to toss everything once the IRS says you dont need to keep it, you might want to think twice. You might need to keep your records for other reasons. Your insurance company or creditors may require that you hold onto things for a little longer.

    One of the benefits of keeping electronic records is that you dont have to store piles of receipts in a filing cabinet. Archive your old records so that you can access them years into the future, anytime you need.

    How To Store Documents

    You can keep your tax documents in a fireproof safe or a banks safe deposit box. But to conserve space, consider scanning all of your tax-related documents and saving them to an external hard drive or on a cloud service. As long as you can reproduce the documents and they are legible, the IRS accepts electronic copies.

    Also Check: Deadline To File 2021 Taxes

    Organizing Your Home Records

    Because paper, such as receipts, fades with time and takes up space, consider scanning and storing your documents on a flash drive, an external hard drive, or a cloud-based remote server. Even better, save your documents to at least two of these places.

    Or, you can consider an app such as Smart Receipts, which is available via Google Play and Mac App Store. Smart Receipts lets you track your finances, including receipts, for yourself or your employer. You can choose from default data types including dates, price, tax, receipt categories, comments, and payment methods.

    Digital copies are OK with the IRS as long as theyre identical to the originals and contain all the accurate information that was in the original receipts. You must be able to produce a hard copy if the IRS asks for one.

    Tip: Tax season and years end are good times to purge files and toss what you no longer need that’s often when the spirit of organization moves us.

    When you do finally toss out your home-related paperwork, use a shredder. Throwing away intact documents with personal financial information could put you at risk for identity theft.

    This article provides general information about tax laws and consequences, but isnt intended to be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.

    Dont Count On Your Accountant

    How Long do I Keep Tax Records

    If you use a CPA, dont rely on your accountant to keep records for you. Taxpayers should maintain copies of tax returns and related documents themselves, Curtis says.

    CPAs who prepare returns are required to furnish copies of those returns to the client, so the client should always have their own copy, she says. The tax return is ultimately the responsibility of the taxpayer and not the preparer, and very often the IRS will only work directly with the taxpayer during an audit.

    While CPAs are also required to keep tax documents for three years, Ultimately the onus is on the taxpayer to make sure tax forms and documents are available if the IRS requests them, Curtis says. Taxpayers should really think of the copies kept with their CPA as backup copies.

    Keeping your own records prevents any potential problems if your CPA sells their business, retires, loses their records in a fire or flood, or dies.

    In most cases, a scanned document on the cloud is as good as the original, says Curtis. It may be better because the ink wont fade. Deeds, titles, stock and other investment authentications and valuations would be the exception to the scan rule.

    Also Check: Are Municipal Bonds Tax Free

    Reasons For Retaining Business Records

    When you think about retaining records and documents, the first thing that probably comes to mind is an IRS audit. While you need to present tax filings and supporting documents if you are audited or you wish to amend a previous tax return, there are many reasons for retaining other types of documents and records. Here are a few of them:

    • Lenders whom you approach for financing might require income, sales history, and other documents.
    • When you are negotiating with landlords, insurers, and other vendors, having a clear and written history of previous leases, insurance policies, and other contracts might strengthen your position.
    • If you decide to sell your business, potential buyers will want to review historical records as part of their due diligence.
    • If you become involved in a dispute or lawsuit, you might need meeting minutes and written agreements to support your position.

    How Long To Keep Tax Records: Can You Ever Throw Them Away

    Once youve submitted your tax return to the Internal Revenue Service each year, the last thing you probably want to think about is how to store your tax records. But making these arrangements is essential to protect yourself in the event of a future IRS audit.

    The general rule is to keep your tax records for three years, but there are several important exceptions for when you might need to keep your tax records for a longer period as a taxpayer. Read on to learn how long to keep your tax records and when you can safely dispose of them.

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    Tax Records To Save Beyond 3 6 Years

    As we mentioned above, you should keep your completed tax returns indefinitely. We also recommend saving these types of records longer than the standard 3 6 years:

    • Purchase records for investments such as real estate, stocks, mutual funds, cryptocurrency, and other investments
    • These records should include the purchase price and date of purchase
  • Records for stocks, cryptocurrency, and other investments that you inherited or received as a gift
  • These records should show the original purchase price, original date of purchase, and the date you received the investment
  • You may need extra records to prove eligibility for the Section 1202 exclusion or other specific items
  • Birth certificates or adoption records for your children
  • Divorce decrees
  • With a little preparation and organization , you can make a potential tax audit run much more smoothly.

    Plus, good records can help lower your tax bills each year! Our experienced tax attorneys can help you take advantage of every possible deduction. Schedule a confidential tax preparation consultation today.

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