How Long Do You Need to Keep Tax Records?
No one likes doing their taxes, but after you’ve submitted your forms and receipts, at least your job is done, right? Not so fast. Just because you’ve completed your return doesn’t mean you’ve fulfilled your tax obligations. You also need to keep your tax returns and all accompanying documents for a specific period of time after you file.
While it might feel like a pain to have to store your tax returns, it’s actually beneficial for you to keep those documents on file rather than throw them out. That’s because if you’re ever audited, you need to be able to prove that you actually had the expenditures you claimed.
What happens if you can’t back up your expenditures with proof? You won’t be able to claim those deductions and you could find that you owe a hefty tax bill.
Save yourself the trouble and buy some file folders so you can store your tax records until the statute of limitations is up on the IRS’ ability to comb through your receipts.
Welcome to a better way to do your taxes.
You might not have to hold onto your files for as long as you might think. In most cases, you only need to keep your tax records on file for three years from the date you filed them or two years past the date that you paid your taxes – whichever is later.
Also, if you file to amend your taxes after you file your original return, you would also have to shift the date to either two years after your amendment or three years total – whichever is later.
If the IRS hasn’t contacted you to audit your file by then, you‘re likely free and clear to do whatever you want with your tax-related documents.
Before you shred those receipts – or light them on fire – you should know that there are some exceptions. For example, if you paid your taxes late, you might have to keep your tax return for slightly longer. It just depends on how late you filed your taxes.
While you have a three-year period in which to be audited under normal circumstances, if you failed to include all your earnings on your return, then the IRS gets an extension of up to six years to audit you. But that’s only if you underreported your earnings by 25 percent or more.
Furthermore, if you buy a stock and you lose money on it, you can potentially write off that stock later as worthless. But if you do that, you have to hold on to the records of that bad investment for up to seven years.
Also, if you need to make a deduction based on bad debts that you have to write off, that same seven-year window applies.
We know, it seems like almost nothing tax-related is straightforward. You can simply hold on to your tax returns for seven years just to be safe. But if you haven’t underreported your income, and you didn’t write off any investment or lending losses, then you’re likely safe to use those receipts as fire starters once a time period of three years after filing – or two years after you pay your taxes – passes. If you’re still not sure, consult with a tax professional.