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How Long to Keep Tax Returns and Records?

October 25, 2023 - 2 MINUTE READ

Many people frequently inquire about the duration for retaining tax returns and related documents, seeking a specific timeframe to declutter their tax-related paperwork. The period for preserving these records varies based on the nature of the documents and your financial activities.

Tax Returns: In general, you should hold onto your tax returns for a minimum of three years from the due date of the return. 1This period typically aligns with the IRS's window for scrutinizing items on your return and assessing any additional tax liabilities. It also allows you to file an amended return to claim a refund. 1Keep in mind that the IRS can go back up to six years if your return underreports income by over 25%. In cases of proven fraud, there's no time limit. State tax returns may require longer retention periods.

Tax Returns and Records Worth Keeping Longer: Rather than reflexively discarding all tax records after three years, review your old documents to determine if you may need certain parts in the future. Here are examples of documents and returns that should be retained for longer than three years:

Real Estate: Maintain records that establish the adjusted basis of real estate.

Save your settlement sheet when acquiring real property, including your residence.

Keep these files for at least three years after property disposal. Good record-keeping will help you calculate the adjusted basis of your real estate investments effectively.

Securities: The same principles apply to securities transactions as with real estate. Keep purchase documents for taxable mutual funds, stocks, and similar assets. 1You'll need the purchase date and cost when reporting the sale in the year it occurs. Also, maintain records for stock splits, dividend reinvestments, nontaxable distributions, and the maturity dates of bonds or Treasury securities.

IRAs and 401(k)s: For nondeductible IRA contributions or post-tax 401(k) contributions, keep records until three years after the accounts are emptied. 1Remember to file Form 8606 with your return when making a nondeductible IRA contribution. Keeping copies of Form 8606 and your 1040s for each year with such contributions is essential. Maintain records reflecting IRA payouts, like Form 5498 or similar statements.

Inheritance: If you inherit or receive property as a gift, retain documentation of the date-of-death value for inheritances and the donor's cost for gifts until three years after you sell the asset.

Businesses: Businesses should retain payroll tax records for at least four years after the due date for filing Form 941 for the fourth quarter of a given year. This includes wage amounts, payment dates, employee data, copies of W-4 forms, and records of tax deposits. 1Retain records of tips earned by employees, fringe benefits, and copies of health coverage forms (1094 and 1095) for at least three years after the filing deadline. Additionally, business asset cost and depreciation records should be kept for decades.

Sources:

1https://www.fidelity.com/insights/personal-finance/keep-tax-records

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