How Long Should You Keep Tax Records?
The IRS says you should keep records that support an item of income or a deduction until the period of limitations for the return runs out. A period of limitations is the period of time after which no legal action can be brought.
Keep your records a minimum of three years.
However, I would suggest keeping them at least seven years just in case you're subjected to one of the items listed below where the IRS can come after you beyond three years.
Periods of Limitations
- If you owe additional tax and situations 2, 3, and 4 below do not apply to you, the period of limitation is 3 years.
- If you do not report income that you should report and such income is more than 25% of the gross income shown on the return, the period of limitation is 6 years.
- If you file a fraudulent return, the period of limitations in NOT limited.
- If you do not file a return, the period of limitations in NOT limited.
- If you file a claim for credit or refund after you filed your return, the period of limitation is the LATER of 3 years OR 2 years AFTER the tax was paid.
- If you file a claim for a loss from worthless securities or a bad debt deduction, the period of limitation is 7 years.
Retaining Property Records
Keep copies of purchase receipts and contracts for business equipment at least three years after the property has been disposed of.
Keep copies of depreciation records for at least three years after the property has been disposed of. Property records are needed to determine gain or loss on the disposition of the property.
Retaining Tax Returns
Keep copies of income tax returns at least three years after the return was filed or the tax paid, whichever is later.
Keep copies of payroll tax returns at least three years after the tax year they were filed (longer, if payroll-related taxes have not been paid).
If you have a loss carryover or carryback in any given tax year, keep the return for the tax year the carryover and/or carryback originated as long as necessary to support a deduction claimed on future year's tax return or on amended return in the case of a loss carryback.
These record retention rules are just guidelines. How long you may actually want to keep such records beyond the periods of limitation is up to you. Keep in mind, if the IRS suspects fraud or criminal misconduct, it can go back further than three years after a return was filed.
Need a copy of a prior year's return?
- Return to the Tax Basics for Startups Table of Contents to find related links.