What Tax Records Should You Keep?

With the end of the year and tax season approaching, the IRS is reminding taxpayers about what tax records they should keep and for how long.

The IRS has provided recent guidance to taxpayers on how long they should retain their tax records and other documents.

The IRS recommends keeping copies of tax returns for at least three years, however, some documents should be kept up to seven years in case a taxpayer needs to file an amended return or if questions arise in the future.

The IRS makes these specific recommendations regarding keeping tax records:

  • 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 credit or refund after you file your return.
  • Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
  • Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
  • Keep records indefinitely if you do not file a return.
  • Keep records indefinitely if you file a fraudulent return.
  • Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

It is even more important for taxpayers to have a copy of last year’s tax return as the IRS makes changes to authenticate and protect taxpayer identity. Beginning in 2017, some taxpayers who e-file will need to enter either the prior-year Adjusted Gross Income (AGI) or the prior-year self-select PIN and date of birth. If filing jointly, both taxpayers’ identities must be authenticated with this information. The AGI is clearly labeled on the tax return.

Health care information statements should be kept with other tax records. Taxpayers do not need to send these forms to IRS as proof of health coverage.

The health related records taxpayers should keep include records of any employer-provided coverage, premiums paid, advance payments of the premium tax credit received and type of coverage. Taxpayers should keep these for at least three years after they file their tax returns.

It is also important to remember to store tax records securely whether in paper or electronic format. Scanning any paper records and storing the digital copies securely as well as making regular backups of the digital records in the event of a computer failure is good practice as well. Backups can be made to USB drives, CD/DVD, to an external USB hard drive or to the cloud with a secure backup service such as Backblaze or Carbonite.

When it comes time to discard tax records, remember to do so securely. Shred any paper files, destroy digital media items such as CDs or DVDs so they cannot be accessed, and securely delete files off of a computer so they cannot be recovered later.

Additional information is available on the IRS website.

About the Author

Ian Smith is one of the co-founders of FedSmith.com. He has over 20 years of combined experience in media and government services, having worked at two government contracting firms and an online news and web development company prior to his current role at FedSmith.