How Long to Keep Documents: Tax Records and Bank Statements
If you’re like most taxpayers, you store paper or digital copies of your tax returns, bank statements and other documents for years, unsure how long they need to be kept. While it’s tempting to shred or remove documents as you downsize or clean house, you don’t want to be caught without supporting evidence, should the Internal Revenue Service (IRS) come looking for proof of your deductions. In other words, when you think about how long to keep documents related to your taxes, you’re likely to err on the side of safety—better to keep them a few years too long than be caught without them.
We’re here to help clear a few things up, including your filing cabinet. Deciding what to keep and what you can safely dispose of doesn’t need to be a source of stress, but there are a few variables to keep in mind. Let’s dive into the details.
The Big Picture
While it is helpful to have old tax returns on file, do you really need to keep that box of receipts from eight years ago? If you’re wondering how long to keep documents, the answer generally depends on what they support or demonstrate and how long the IRS has to audit your tax return, better known as the Audit Statute Expiration Date (ASED).
According to the IRS, you should keep documents that support the following:
- tax returns
- proof of your income (W2s, 1099s, W2’G, bank statements)
- tax deductions or credits (invoices, receipts, 1098, bank and credit card statements)
- tax exemptions (divorce decree, school records, health care records)
Supporting documents for each of these should be kept until the ASED for a related tax year. The ASED refers to the time (in years) following the date when a tax return was filed, in which the IRS can still audit or examine the tax return.
For instance, if you filed a 2020 tax return on April 15th, 2021, the IRS has until April 15th, 2024 to audit that year. In other words, the ASED = 4/15/24. It is the time in which your return is still auditable or amendable—you can update your tax return if you have new information, resulting in a potential credit or refund.
Similarly, the IRS has the right to audit your return, allowing them to assess additional tax.
General Rules for Keeping Records
Keep your records for three years unless you have underreported your income by 25% or more, in which case you should keep your records for six years. This is because the IRS can now go back six years and audit you. For example, if you file your 2021 tax return and later the IRS audits the return and determines you failed to report Form 1099 that is greater than 25% of your total income, then they can now go back six years and audit you for 2015 – 2020.
Similarly, if you have failed to file a tax return at all, or have made a fraudulent return, the IRS has an unlimited statute of limitations to audit you. So, if you didn’t file your 2013 tax return, the IRS can still audit you. In summary, you should keep your income tax records returns for either three or seven years from the original filing due date.
Finally, keep your records for seven years if you need to file a claim for a loss, either from worthless securities or deductions due to bad debt.
As you can see, if you’re wondering how long to keep documents for the IRS, there are several factors to consider. Having a good understanding of the ASED, as it relates to your personal situation, will act as a good starting point. For further variables, let’s dig a bit deeper.
Business/Employment Tax Records
As you would imagine, when you’re wondering how long to keep documents on file for taxes, a business with employment records has its own requirements. After all, the IRS needs to keep track of who is paid, how much they earn, and how much tax has been paid.
If you have documents related to your employment, such as payroll earnings reports, payroll returns 941 and 940, pay stubs, timesheets, W2s, etc. —either your own or for your employees—the ASED Period of Limitations is slightly different. Employment tax records should be kept for at least 4 years after the tax return is due or paid, whichever is later.
Real Estate Property Records
If you sell or otherwise dispose of a piece of property, it is important to keep track of the year that it was purchased and sold or no longer belonged to you. With this year in mind, you can keep count of the Period of Limitations for the property. You will need to retain copies of the original purchase agreement and the sales agreement or closing statements.
The reason these records are important comes down to proving the amount of the taxable gain that directly impacts your income. By the time you sell or otherwise part with the property, you’ll need to account for any amortization, depreciation or depletion deductions.
If you receive a piece of property in a non-taxable exchange, you must keep records on both the old property and the new one, for the entire Period of Limitations.
Make Sure Documents Are Not Required for Other Purposes
If you’re wondering how long to keep documents in your home, you likely have a collection of papers in mind. Whether you are keeping business receipts, tax returns, proof of income or other documents, once you have passed the Period of Limitations set by the IRS, don’t rush to dispose of them right away.
First, check that they are no longer needed by other administrators in your life. Perhaps you’ll need to keep them longer for insurance purposes, for example, or for credit purposes down the road. Check your state requirements, too, in case you need to keep state tax returns longer than the IRS requires.
Once you’re sure you’re in the clear, you’ll feel much more comfortable disposing of your documents. Keep in mind, when it’s time to let them go, it’s important to do it properly. Tax documents should never be thrown directly in the trash, as they contain data and personal information that you will want to keep private. Be sure to shred and securely dispose of tax documents for maximum peace of mind.
When to Keep Records Indefinitely
Of course, when questioning how long to keep documents, there are scenarios in which it’s best to keep your tax records indefinitely. The IRS advises that you do so in one of two cases: you either have not filed a tax return or know that you have filed a fraudulent return.
These scenarios can be tricky to wrap your head around. If you haven’t filed a tax return, how would you be able to keep it on record? The short answer is—if you know you’ve not filed a return or have made a fraudulent return, keep all the records you do have from the year to help you sort through the details, should the IRS come looking for you.
When in Doubt, Check with Your Tax Team
Between the IRS requirements and state tax rules, you may still be left wondering how long to keep documents related to your taxes. There can be nuance within your personal situation, of course, that changes the requirement from three years to seven years or longer.
Your best bet is to speak with your tax team to make sure you have the right information. Ideally, you have an experienced tax team you trust, one that stays up to date with current tax laws and regulations.
At Franskoviak Tax Solutions, we have helped thousands of clients with tax planning for more than 30 years. We provide comprehensive tax services with first-class expertise and a personalized, boutique-style approach. Speak to our team about personal and business taxes, IRS tax deadlines, payroll taxes, IRS tax relief and tax problems such as IRS tax notifications, payroll tax debt, delinquent taxes and more.
Start with a free consultation—we’re here to help you minimize your overall tax burden, stay on top of deadlines and understand how long to keep documents related to your taxes.
