Credit: Pavel Danilyuk
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You’ve filed your taxes. Now it’s time to take care of your tax records. Here’s a look at what tax documents to keep and for how long.
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It’s been a week since Tax Day. Have you recovered from your April 15 filing?
Good. Because now you have some more tax work to do to officially wrap up this filing season. You need to file all the tax material you used to complete your tax return.
The key to good tax record keeping is to hang on to everything. Okay. That’s just obsessive-compulsive me talking. But you do need to keep some filing paperwork.
General tax record keeping guidelines: There’s no federal tax law or Internal Revenue Service regulation detailing a preferred way to keep your tax records. That’s because every taxpayer situation is different.
But the one constant is that you do need to hang onto any material that will help you answer any filing follow-up inquiries from the IRS.
Again, since everybody’s taxes are different, this is a broad look at tax records. As noted, I’m a bit compulsive, with a tinch of hoarding, when it comes to, well, lots of stuff. And when it comes to taxes, I tend to err on the side of over-documentation. I’ve found that it’s always easier to be able to pull out necessary material than it is to recreate it.
So, in light of that personal perspective (which also serves as a warning about the length of this post!), here are my tax record keeping recommendations.
Your Form 1040: The main record everyone should have and keep forever — more on how long you need to keep tax material later — is your actual Form 1040. This includes not only that IRS form, but also all the related schedules et al that you filed along with it.
Not only is a 1040 a good indicator that you fulfilled your annual tax-filing obligation, its information is necessary if you later discover you need to file an amended return.
1040 forms also come in handy for non-tax reasons, such as applying for a loan. And your latest tax return is a great reference and guide for future filings.
| Obtaining Old Tax Returns If you don’t have all your old 1040s, the IRS can help. The easiest way to get your prior filing information is to create an Individual Online Account at IRS.gov. Once that’s set up, you can view, print, or download a tax transcript. A tax transcript, which is available for the current and three prior tax years, shows most line items from your original Form 1040-series tax return as you filed it. It also has any forms and schedules connected with the 1040. But if you made any changes after filing your original return, those alterations are not shown in the tax transcript. If, however, you want a full copy of a prior return, you’ll have to file IRS Form 4506, Request for a Copy of Tax Return. There is a $30 charge for each return copy you request. |
Income statements: Since what we pay Uncle Sam is an income tax, it makes sense to keep records that show what you earned. There are many sources of income, such as wages, dividends and interest, sales of capital assets, partnership or S corporation distributions, and self-employment earnings.
The type of records you have to prove your income depends on how you got it. Some taxpayers will have many of the tax statements listed in my pre-filing post tax statements you need to file your tax return. Others will get only a few.
Most taxpayers get confirmation of their taxable salary on the Form W-2 issued by their employers. Keep it. You also might want to hold onto your final pay statement/paycheck stub of the tax year. It could show potentially deductible expenses (and, more to come on this a bit later) withheld from your paycheck.
Investment earnings show up on a variety of 1099 forms. This includes statements of accounts that are still paying dividends and/or capital gains, as well as those when you finally sell any assets.
And if you have investments in retirement accounts, either traditional tax-deferred plans or Roth versions that are tax-free, these statements will help you with any tax due when you start taking distributions.
Regardless of the number of tax-related statements you got, and used, to file your taxes, retain your copies in your tax filing record system.
Tax-deductible expenses: Most taxpayers claim the standard deduction. That’s an advantage at filing and record keeping time.
But if you do/did itemize, you’ll definitely want to keep records of the expenses you claimed on Schedule A. These include such things as medical expenses, charitable contributions and acknowledgement receipts from the nonprofits, mortgage interest, real estate taxes, state and local income taxes, and property losses in a major disaster.
Then there are the other deductions, technically known as adjustments to income and still referred in the tax world as above-the-line deductions, that anyone can claim, regardless of whether they use the standard deduction or itemize. This filing season, some taxpayers also claimed new One Big Beautiful Bill Act tax breaks that don’t require itemizing. These are for such things as educators’ out-of-pocket expenses, contributions to retirement accounts, and interest you paid on a student loan.
Finally, there are records connected to any tax credits you can claim. Tax credits are available to eligible taxpayers regardless of which deduction method they use. Tax credits also offer dollar-for-dollar reduction of any tax you owe. In the case of refundable tax credits, which is where you have more tax credit than tax bill, you can get the excess credit as, you got it, a refund.
You want to make sure that is an IRS examiner has questions about any of these claims, you have the records to show that your filing was correct.
Housing records and taxes: As noted in the expense records section, some home-related documents, such as those detailing your mortgage interest or real estate taxes, are used in claiming itemized expenses.
But even if you don’t use residential records for immediate tax-filing deduction purposes, you should keep them for future tax claim use. For example, there could be tax consequences when you eventually sell your main home. Your documentation could help you make sure any tax cost is as small as possible.
Many homeowners who sell their primary residences won’t owe tax on the profit. Up to $250,000 in home sale profit for single owners, or $500,000 for a jointly-filing married couple, generally is non-taxable. That amount applies when the seller(s) have lived in the house for at least two out of the past five years.
Any residential sale profit over those exclusion amounts is subject to capital gains tax, which is zero percent, 15 percent or 20 percent, depending on your taxable income.
If your home sale profit is more than the excludable amount, good records of improvements to your property, from a structural addition to total re-do of your kitchen to landscaping, could help you get under the no-tax number.
Allowable upgrades — remember, these are property improvements, not just repairs and maintenance — add to your home’s basis, which is subtracted from your sales amount to arrive at your profit. The larger your basis, the lower your profit … and potential tax.
How to store tax records: OK, you’ve got all this stuff. How and where do you keep it? Any way that works for you, since as noted earlier Uncle Sam has no rules on one specific way to retain tax records.
If you’re a paper devotee, then set up that method in an accordion file, or if you have a lot a material, a filing cabinet.
Personally, most of my records are digital. But we all know that technology is great until it isn’t. That’s why in addition to electronic backup systems, this admitted record keeping obsessive also loves the protection that paper redundancy offers.
So, you do you when it comes to your tax documentation comfort level.
Sufficient to satisfy the IRS: The one constant for any record keeping system is that you store in it any material that will help you answer any filing follow-up questions the IRS might have.
And your answers are key. The IRS notes, in the statement below from IRS.gov, that we taxpayers bear the burden of proof when it comes to our tax form entries.
“The responsibility to prove entries, deductions, and statements made on your tax returns is known as the burden of proof. You must be able to prove (substantiate) certain elements of expenses to deduct them. Generally, taxpayers meet their burden of proof by having the information and receipts (where needed) for the expenses. You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. Additional evidence is required for travel, entertainment, gifts, and auto expenses.”
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Tax record keeping timing: Now that you know what to keep and how you’re going to stash it, the next question to answer is for how long?
Although the IRS’ Taxpayer Bill of Rights says we have the right to finality when it comes to our taxes, the old joke about hanging onto tax records forever also is true. That’s because, despite tax statute of limitations, technically the IRS can come asking questions any time it suspects a taxpayer committed fraud.
More realistically, however, most of us who do our best to get our tax returns right each year need to be aware of some shorter time periods in connection with tax record keeping.
The periods of limitation differ for particular tax circumstances, detailed in the table below.
| If you — | Then you have — |
| File a return and the next three circumstances don’t apply to you | 3 years |
| Don’t report income that you should and it is more than 25% of the gross income shown on your return | 6 years |
| File a fraudulent return | No Limit |
| Don’t file a return | No Limit |
| File a claim for credit or refund after you filed your return | The later of 3 years or 2 years after tax was paid |
In addition, the IRS says to hang on to employment tax records for at least four years after the date that the tax becomes due or is paid, whichever is later.
The years noted above generally refer to the time period beginning after the return was filed. Returns filed before the due date are treated as being filed on the due date.
Here’s hoping you never have to dig out old records to justify a tax claim to an IRS auditor. But if that does happen, a solid record keeping system that you stick to will help you be ready with the answers to quickly resolve the issue.
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