One of the most frequently asked questions I receive from clients almost daily is, “how long should I keep my records?”
According to IRS guidance, the length of time you should keep a document actually depends on the action, expense, or event that the document pertains to. Generally, you must keep your records that support an item of income or deductions on a tax return until the statute of limitations for that return runs out.
The statute of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or that the IRS can assess additional tax. The information below contains the statute of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.
Copies of your filed tax returns should be kept indefinitely. These help in preparing future tax returns and making computations if you file an amended return for many reasons.
The following are guidelines for keeping the backup documentation necessary for preparation of income tax return filings:
- Generally, all records should be kept for a minimum of 3 years.
- If you file a claim for credit or refund after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
- If you file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
- Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
- If any item is questioned by a taxing authority, records may need to be available for a much longer time period. For example:
- If you do not report income that you should report, and it is more than 25% of the gross income shown on your return, the IRS can request records for up to 6 years.
- If you file a fraudulent return, the IRS can request records for an indefinite period of time.
- If the IRS determines you did not file a required return, records can be requested for an indefinite period of time.
The following questions should be applied to each record as you decide whether to keep it or throw it away:
Are the records connected to assets?
Keep records relating to property in order to figure any depreciation, amortization, or depletion deduction, and to figure the gain or loss when you sell or otherwise dispose of the property.
If you received property in a like-kind exchange you must keep the records on the exchanged property, as well as on the new property, until you dispose of the new property in a taxable disposition.
Are the records connected to employment tax recordkeeping?
Keep all records of employment taxes for at least 4 years after filing the 4th quarter for the year. These should be available for IRS review. Records should include:
- Your employer identification number.
- Amounts and dates of all wage, annuity, and pension payments.
- Amounts of tips reported.
- The fair market value of in-kind wages paid.
- Names, addresses, social security numbers, and occupations of employees and recipients.
- Any employee copies of Form W-2 that were returned to you as undeliverable.
- Dates of employment.
- Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them.
- Copies of employees' and recipients' income tax withholding allowance certificates (Forms W-4, W-4P, W-4S, and W-4V).
- Dates and amounts of tax deposits you made.
- Copies of returns filed.
- Records of allocated tips.
- Records of fringe benefits provided, including substantiation.
What should I do with my records for nontax purposes?
When your records are no longer needed for tax purposes, do not discard them until you check to see if you must keep them longer for other purposes. For example, your insurance company or creditors may require you to keep them longer than the IRS does.
The links below on the IRS website provide additional guidance regarding record keeping and the burden of proof concept that the IRS follows. The burden of proof refers to the responsibility to prove entries, deductions, and statements made on your tax returns. You must be able to prove (substantiate) certain elements of expenses to deduct them.
- Publication 547, Casualties, Disasters, and Thefts (Business and Non-Business)
If you would like to download a formal Records Retention Guide, click here.
Please keep in mind the above guidelines are from a tax perspective and not offered from a legal standpoint. Please consult with your legal advisor regarding how long to keep your records for those purposes.
If you have questions, or would like additional information on the above topic, please contact Cheryl A. Prout, CPA and Partner, at firstname.lastname@example.org or 716-250-6600.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.