How Long Should You Keep Your Tax Documents

It is not inconceivable to picture a paperless society somewhere in the near future. In fact with more and more consumers paying their bills online and choosing electronic data storage over paper, we are well on our way. Despite this gradual switch to all things electronic, taxpayers are required to keep paper documents to serve as proof of the data used to complete their annual tax return. How long you must keep certain tax documents depends largely on the type of action or expense for which they provide evidence. According to the IRS, “generally, you must keep your records that support an item of income or deductions on a tax return until the period of limitations for that return runs out“. The following documents should be kept to support information filed on your tax return.
How Long Should You Keep Your Tax Documents

Tax returns

The amount of time recommended to hold tax returns depends on your individual situation. Ten years is the absolute longest as that is the amount of time the IRS has to assess taxes for which you are liable. It generally doesn’t take that long for the IRS to catch up with individuals owing back taxes, therefore a more reasonable period of time would be between 3 and 7 years. If you have failed to file a tax return or filed a fraudulent return, all records should be kept indefinitely as you will need them to address your back taxes issues when the IRS does catch up with you.

Bank statements

Bank statements reflecting your checking and savings activity need only be held after you have reconciled your account if they document any purchases that may be needed as proof for deductions or credits. Both bank and credit card statements supporting information on your tax return should be kept with that tax return.

Bills

How Long Should You Keep Your Tax Documents
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Monthly bills that do not provide any support for tax purposes do not need to be kept.

Retirement contributions

Keep any statements relating to retirement contributions until you begin taking distributions. They will not only support yearly tax records but also provide valuable information when retirement rolls around and you need proof of contributions and any taxes already paid.

Investment records

Monthly and annual statements documenting capital gains and losses should be held as long as you have the investment. These statements will be needed to prepare your tax return.

Time Period For Keeping Tax Documents

It is important to note that despite the specified time period that is required for tax purposes, certain documents may need to be held longer for purposes beyond tax documentation. Always confirm you will no longer need financial documents for any reason before destroying valuable evidence. If record keeping is not your strong point, it would pay to develop a system which makes it easier to file and store important documents easily. When you have a system in place that allows you to keep all important documents in an orderly fashion, it becomes much easier to keep track of information needed during tax time and other situations which arise that require reference to past financial transactions.

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