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Exceeding Expectations. Always. — Business Advisors and CPAs

How Long Should You Keep Records After Tax Day?

Have you ever seen the television show Hoarders? If you haven’t, the basic premise of show is that psychologists, clean-up crews and professional organizers go into the home of a person who has a psychological aversion to throwing things away. These hoarder’s homes and lives have been overtaken by clutter, trash and “stuff”. It is disturbing to see, yet oddly compelling for some strange reason. Mounds of financial information can sometimes make us feel like Hoarders.

Now that another tax filing season has come to an end, taxpayers are not completely off the hook. One of the most common questions we get after tax time is, “How long do I have to keep all of this tax stuff”. Unfortunately, you will want to keep records and documentation on hand in the event that the IRS comes calling. Here are some tips to help you figure out which records to keep and how long to keep them:

•  We recommend keeping your actual tax returns permanently.

•  As a rule, keep your supporting documentation for your tax return until the statute of limitations runs for filing returns or filing for a refund. For most taxpayers, that means that you’ll want to keep those records for three years following the date of filing or the due date of your tax return, whichever is later. So, for example, if you filed your 2011 tax return on Tax Day, April 17, 2012, you’ll want to keep those returns and those records until April 17, 2015.

•  If you are negligent in reporting income, the statute of limitations runs longer. Thus, you will need to keep your records longer. If you omit more than 25% of the gross income shown on your return, the statute of limitations is extended to six years.

•  If you file a clearly fraudulent return or if you don’t file a return at all, the statute of limitations never actually runs. In that event, you’ll want to hold onto your records forever, which is all the more reason not to be in that predicament in the first place

•  Supporting documentation for your tax returns includes not only your forms W-2 and 1099 but also bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.

•  If you claim depreciation or amortization deductions, you’ll want to keep related records for as long as you own the underlying property. That includes deeds, titles and cost basis records. Similarly, if you claim special deductions and credits, you may need to keep your records a little longer than normal (for example, if you file a claim for a loss from worthless securities or bad debt deduction, you should keep those records for 7 years).

•  If you have employees, including household employees, keep your employment tax records for at least four years after the date that payroll taxes become due or is paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.

•  You’ll want to keep your records organized. I recommend arranging them by year and storing them in a safe place.

•  To save space (and NOT become a candidate for the show, Hoarders), you may absolutely scan your records and store them electronically. The IRS has accepted scanned receipts since 1997, a policy that was memorialized by Rev. Proc. 97–22. You just need to ensure that your scanned or electronic receipts are as accurate as your paper records and you must be able to index, store, preserve, retrieve, and reproduce the records. In other words, you need to have your records organized and be able to produce them in a hard copy form if needed.

Click here to view our complete Records Retention Schedule