Your taxes are filed. Your refund’s been deposited. You’re gearing up for another year of deductions and expenses. So what should you do with this year’s tax documents? You may need to use your previous year’s tax documents for reference, or as proof if you get audited. It’s a no brainer that you should save your documents, but many taxpayers wonder exactly what the timeframe for retention is.
The IRS says it depends on the document, meaning what the expense is and what the document serves to prove. You should also keep copies of tax returns that you have previously filed, as they may aid you in the future.
Records which support income and deductions should be held until the time period for filing an amended return expires. You may need to file an amended return if you want to claim additional credits or refunds that you missed on your original return.
There are different scenarios in which the document retention timeframe changes. The best practice is to follow the IRS guidelines, which state:
Unreported income totaling more than 25% of your gross income shown on the return require you to keep related documents for a period of 6 years.
You’ll need to keep all records indefinitely in the event that you have filed a fraudulent return, or if you haven’t filed a return.
Returns that have been amended in an effort to claim additional credits should have supporting records kept for three years form the date the original return was filed, or two years from the date the tax was paid, depending on which time period is longer.
Records supporting the claim of losses on worthless securities or bad debt should be retained for seven years.
Employer related tax payments should be recorded for four years from the date the tax was due, or the date you paid, depending on which was later.
