April is fast-approaching and with it, tax time. While tax preparation seems to get a little bit easier each year with the prevalence of online tax prep software, thereâ€™s still one question that leaves many Americans scratching their heads: What records should I hang onto for tax purposes and how long should I keep them?
There are a few basic records that everyone should keep, according to the IRS (Internal Revenue Service), including documents that provide evidence of your income and expenses. In addition, if you own a home or have investments, the IRS recommends that you hang onto related records. Hereâ€™s the breakdown:
Basic Records to Keep
|For items concerning yourâ€¦||Keep as basic recordsâ€¦|
Now that you know what to keep, hereâ€™s the low-down on how long to keep them (also known as the â€œperiod of limitationsâ€):
How Long to Keep Records*
|If youâ€¦||Then the period isâ€¦|
|1||Owe additional tax and (2), (3) and (4) below do not apply to you||3 years|
|2||Do not report income that you should and itâ€™s more than 25 percent of the gross income shown on your return||6 years|
|3||File a fraudulent return||Indefinite|
|4||Do not file a return||Indefinite|
|5||File a claim for credit or refund after you filed your return||3 years or 2 years after you paid taxes, whichever is later|
|6||File a claim for a loss from worthless securities||7 years|
*Unless otherwise noted, the number of years you should keep records refers to the time period beginning after you filed your return. If you filed your return before the deadline, the IRS treats it as if you filed it on the deadline.
For more details about which records you should keep for tax purposes, the IRS has put together a handy publication on Recordkeeping for Individuals.