How Long Should You Keep Your Tax Records?

As a taxpayer, it's important to understand how long you need to keep your tax records. The rules around record retention can be complex, with various exceptions and nuances to consider. In this article, I'll break down the key points you need to know.

The Federal Statute of Limitations

In general, the federal statute of limitations for the IRS to assess additional tax is three years from the tax return due date or the date the return was filed, whichever is later.

However, there are some important exceptions to this three year rule:

• If you omitted more than 25% of your reported gross income, the statute of limitations is extended to six years.
• If you did not file a return, filed a fraudulent return, or deliberately tried to evade taxes, there is no time limit for the IRS to assess additional tax.
• If you filed an unsigned return, the IRS has unlimited time to assess additional tax.

State Statute of Limitations

In addition, many states have a statute of limitations that is one year longer than the federal limit. This extra time gives states adequate time to assess tax based on any federal adjustments.

What Records Should You Keep?

• Keep supporting documents like receipts and invoices for as long as necessary, depending on the type of record.
• For capital assets and improvements, keep records until the asset is sold and the tax consequences are closed out.
• For other expenditures and income, keep records at least until the period of limitations runs for that tax return, which is typically:

1. Three years from the filing date or due date (whichever is later) if the return is accurate
2. Six years if you underreported gross income by over 25%
3. No time limit if you didn't file, filed fraudulently, or tried to evade taxes

Some records to keep longer than three years:

• Stock acquisition data: four plus years after selling the stock
• Reinvested dividend statements: four plus years after final sale

For any other questions on which records to keep or discard, contact [email protected]