How Long You Should Keep Tax Returns?

Here are some thoughts from the great personal finance book Grow Your Money!: 101 Easy Tips to Plan, Save, and Invest. They list how long you should keep tax returns as follows:

• If your tax situation is very straightforward, the minimum required time to keep your income tax returns and supporting documents is three years from the return's original due date, including extensions.

• If your tax situation is more complicated, save all your tax returns and documents for at least six years.

Our tax situation is fairly complicated (one reason we use a CPA to do them), and I keep our returns forever. What does "forever" mean? It means that I've never thrown one away. I have the returns as well as supporting documents in separate files in a file cabinet. I have the room, so why not keep them around?

The book then lists stuff you should hold on to indefinitely as follows:

• Records supporting the cost basis of investments such as stocks, mutual funds, and collectibles.

• Records supporting your home purchase and home improvements.

I keep these as well -- in the same file cabinet. :-)

How about you? Do you keep all your past tax records or do you toss (shred probably) them after a bit of time?

Comments

[rdub98]

I haven't thrown out a tax return yet, either. I don't think I need to keep them, but you JUST NEVER KNOW!!!

[Financial Samurai]

There is one thing where I just keep them FOREVER. I'm scared the IRS will one day ask, and then what am I supposed to do?

[Sallie's Niece]

Keep them forever! My parents got audited for a return 11 years back. They had used the same CPA forever but he only keeps 10 years of returns. Luckily they still had their own copy somewhere in the garage.

[Mike Hunt]

Sallie's Niece,

How can your parents get audited for a return 11 years back? I thought the statute of limitations is 3 years unless an irregularity is found and then the IRS can request to go back further?

I've been keeping all my old returns (actually cannot find any before 1996 but oh well) but at some point the will need to be junked.

-Mike

[George]

I just started throwing them out. I had kept them for about 20 years and I threw out all but the last 10. You have to purge at some point, and they aren't going to want to look at returns older than seven years. There is no reason to keep other than because of being a pack rat.

[Greg]

Nearly 20 years ago, before I became financially aware, I made the mistake of getting on the wrong side of an issue between the IRS and an ex-wife. Being unemployed and poor at the moment, I had lots of time to spend in the library reading our 25,000 pages of tax code. (It's 44,000 now!)

As I recall the 3 year statue of limitations is for a citizen to file an amended return. The IRS has no limitations if they identify potential tax evasion. The question is what they consider tax evasion? Is that failure to file or is that claiming a few too many dollars in charitable contributions?

Either way, tax returns are one thing I will be keeping forever. I'd rather go through another divorce than face that challenge again!

The good news for me was that instead of paying $18,000 I ended up with a legitimate $1,800 return, still tucked safely in an IRA just in case!

[Mike Hunt]

One thing is for sure- the IRS runs an interesting racket. First of all you have to voluntarily disclose all your income and then pay taxes on this. Usually there is no checking and no audit but there is a random chance you will be audited, then you must have your records in order.

Paranoia is healthy in this environment.

Indeed, what a racket.

And individuals worry like crazy about properly filing every dollar while the gov't dumps huge taxpayer money at the banks and dubious programs. Nobody freaks out about that but we sure worry about keeping our returns 7 years, yessiree!

-Mike

[Jon]

I thought I'd be in the minority here, but I guess I fall squarely in the middle, having tax returns going back 16 years. One of these days the filing cabinet will get too full, and I'll have to shred the oldest ones.

[Ellen / MoneyLounge]

It never hurts to be safe and keep these around. When you apply for a loan, you need the past two years documented (in most cases), so you will want to hang on to those. I would say, file them all away and hold on to them.

[Old Limey]

I have mine going back to 1986. That's probably more than I need but I don't need the space so why bother shredding them?

[Phil]

I've keep mine for years. But I did hear once that a big mistake people make is that they bring out the old tax papers when they get audited. It's my understanding that if you get audited, in most cases you will only need to bring the papers from the year they are auditing.

[RobF]

We have all ours, though I shred the receipts and supporting stuff after about 10 years. I started scanning the oldest returns and W2s. I ended up using them to prove I worked at a job for a background check. We keep the returns partly to show how savings plan distributions and stock splits were declared.

[Crystal]

I just started a tax course and they recommend keeping them until you start receiving SS benefits. In case the SS records go kabunk in some way, it's the only way you'll have proof of what you paid into SS.