What tax records do I need to keep and for how long?
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UPDATED: Jul 15, 2021
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To be safe, keep your income tax returns indefinitely since they can be your paper trail. Documents regarding investment, real estate and business assets, and other supporting documents (receipts, canceled checks, credit cards, and so forth) should be kept for six years. This is because the IRS can go back three years from the filing date to audit your records and returns, and impose additional tax. In some cases, the IRS can audit up to six years after filing if income is under-reported by 25% or more or if there is suspected fraud. Even if you have always been completely honest about your income and have never been audited, you still need to keep tax records. Sometimes mistakes are made that are not your fault and having the records on hand can help correct the problem with less hassle.
The best way to organize your documents is to keep a file for each tax year. Each file should contain your tax filing documents along with the income and payment forms that you received from various employers. In addition to these documents, any information concerning large purchases that would be considered capital gains such as cars, furniture, home improvements, and artwork should all be kept. Also, a summary statement of your financial portfolio and any trust summaries should be kept on file for each year. If there are any documents that you are unsure about, look over your old tax returns to see if the information is specifically listed. If it is, the documents should be kept.
To save room, you can scan the documents onto your computer and save them in an electronic file. This will ensure all documents are saved and easily accessible. Consider creating a backup disc or using backup hardware such as an external hard drive.
If you have further questions about keeping your income tax returns and tax records, get in touch with an attorney.