What happens as the years pass and all the IRS tax records you’ve prepared are still sitting in an old box or drawer, or gathering dust in your attic?
You’ve seen them enough times and the temptation to throw them out was tremendous. But the question gnawing at you was this: How long does the Internal Revenue Service require you to keep those tax records?
Well, they would certainly like to see you hang on to those records at least three to seven years. The general rule of thumb is to keep any records supporting items shown on your tax returns for as long as necessary in the event that a claim has to be amended within its time period, whether it is for a refund, credit or the assessment of an additional tax.
There is a standard amount of time that the IRS uses in order to assess additional tax after a return is filed and that time period is three years.
The simple practice would be to keep the copies of your actual tax forms indefinitely, but you don’t have to hang on to records, documentation and/or receipts once the time periods have passed.
The IRS does not specify exactly how you should keep or store those records. So, if you prefer, you can keep an electronic copy of them.
Here are some options if you’d like to store digitally:
You can scan your records. Store the data and put it into an external hard drive or you can use the Cloud. Amazon has a free digital storage service. Of course, you can weigh your own options on how you want to save your files. But, just remember that you may have to get access to a hard copy at a moment’s notice so make sure your organizational skills are on track.
One more important thing: Saving your records on your computer is a wonderful thing and the fact is, the IRS has accepted scanned documents since 1997. Just make sure that those scanned documents are as accurate as your paper ones.
In summary, according to the Internal Revenue Service, the following is the rule of thumb:
- If you owe additional tax, the period to keep your records is three years.
- If you do not report income that you should have reported and it is more than twenty-five percent of the gross amount on your tax return, the period to keep those records is six years.
- If you file a fraudulent return, the period of time is indefinite.
- If you do not file a return at all, the period of time is indefinite.
- Once you file your tax return, if you file a claim for a refund, the period of time is three years.
- If you wish to file a claim on a loss you took due to worthless securities, the period of time is seven years.
There are other reasons to retain tax records. There are reasons that go beyond the Internal Revenue requirements, such as applying for a home loan or insurance where you may be required to produce tax records. So, keep records in the event that you may need them, especially if you are unclear as to what they can be used for in the future.