How long do I need to my tax keep records?

You’ve filed your return, but now you have a pile of documents and you are wondering whether you really need to hang on to all of it. And if so, for how long? The answer is that there are some guidelines to follow, but it also depends on the types of documentation that you have.

In general, tax returns and supporting records should be kept for seven years. These records may have to be produced if the IRS was to audit your return. In addition, lenders or other private parties may require that you produce copies of your tax returns as a condition to lending money, approving a purchase or otherwise doing business with you.

Except in cases of fraud or substantial understatements of income, the IRS can only assess tax up to three years after a return is filed. For example, if your 2018 individual income tax return is filed by its due date of April 15, 2019, the IRS will have until April 15, 2022 to assess a tax deficiency against you. If you file your return late, the IRS generally will have three years from the date you filed the return to assess a deficiency.

However, the three-year rule isn’t ironclad. The assessment period is extended to six years if more than 25% of gross income is omitted from a return. In addition, if you failed to file a tax return for a certain year, the IRS can assess tax at any time (even beyond three or six years). If the IRS claims that you never filed a return for a particular tax year, keeping a copy of the return will help you to prove that you did. Records relating to certain property may have to be kept longer. For instance, if you purchase a home or invest in stocks you could easily hold those investments for much longer than three or six years, but you will still need the documentation of those purchases when those items are eventually sold.

Like everything in life, there are exceptions, but generally, you should hang on to your tax returns and supporting records for seven years.

For more information on how long to keep certain documents, email us at info@canethics.com.