How Long Should Tax Records Be Kept?
The duration for which taxpayers should retain tax records depends on the specific action, expense or event documented within the records. Typically, taxpayers are required to retain their documentation validating any income, deduction or credit reported on their tax return until the statute of limitations for that return expires.
The statute of limitations denotes the timeframe during which taxpayers can amend their tax returns to request a credit or refund, or when the Internal Revenue Service (IRS) can impose additional taxes. The details provided below outline the applicable statute of limitations for income tax returns. Unless specified otherwise, the years mentioned pertain to the period following the filing of the return. Returns submitted before the deadline are regarded as filed on the due date.
The following questions provided by the IRS should be applied to each record as to whether or not a taxpayer should discard or keep a document. Retaining copies of filed tax returns is a good habit. Prior year tax returns can aid in preparing future tax returns and making computations if taxpayers file an amended return.
Period of Limitations that Apply to Income Tax Returns
| If a taxpayer… | Then the period is… |
| 1. Files a return and situations (4), (5) and (6) do not apply to them | 3 years |
| 2. Files an original return or 2 years from the date they paid the tax, whichever is later, if they file a claim for credit or refund after they file their return | 3 years |
| 3. Files a claim for a loss from worthless securities or bad debt deduction | 7 years |
| 4. Does not report income that they should report, and it is more than 25% of the gross income shown on their return. | 6 years |
| 5. Does not file a return | Indefinitely |
| 6. Files a fraudulent return | Indefinitely |
| 7. Files employment tax records after the date that the tax becomes due or is paid, whichever is later | 4 years |
How Long Should Records Connected to Property Be Kept?
Records relating to property must be kept until the period of limitations expires for the year in which taxpayers dispose of the property. These records are necessary for calculating any depreciation, amortization, or depletion deductions, as well as determining the gain or loss upon the sale or disposition of the property. In the case of property received in a nontaxable exchange, its basis remains the same as that of the property surrendered, augmented by any additional funds paid.
What Are the Limitations of Records for Nontax Purposes?
Taxpayers should not discard records that are no longer needed for tax purposes until they check to see if they are needed for other purposes. Insurance companies and creditors may require records to be kept longer than the IRS does, so it’s beneficial to check those policies first before discarding nontax records.
If you have any questions regarding period of limitations that apply to income tax returns, please contact an advisor at Brown Plus.