There’s a good chance you’ve asked yourself one tax question in particular when it’s time to clean out the filing cabinets in your home—how long do you really need to hold onto old tax records? In this blog, we hope to settle the question once and for all.

The Basics

In general, you should hold onto your tax records for at least 3 years after the original due date of the return that the records are for. If you filed late and past the due date (even if you received an extension to do so), you should use the actual filing date as the benchmark instead of the original due date.

In states, the statute of limitations for tax-related issues is typically a year longer than the federal requirement, since the IRS provides state authorities with federal audit results after the fact. This means that, for the average person, 4 years is sufficient to hold onto state tax records.

Exceptions to the Rule

There are a few exceptions to the 3-year federal rule, including:

  • When a taxpayer omits over 25% of their gross income on a tax return, the statute of limitations is extended to 6 years
  • If a taxpayer doesn’t file a return, files a false return to evade taxation or deliberately tries to evade paying taxes, the IRS can assess additional taxes at any point without a statute of limitations
  • If a taxpayer files an unsigned return, the IRS can assess additional taxes at any point

If you do not fall into any of those 3 categories, you can discard federal tax records that are over 3 years old. If you are interested in being cautious, you can keep them for a fourth year with respect to state laws.

What You Shouldn’t Throw Away

  • You should never throw away the filed copies of your tax returns and W-2s, as they can provide you with data needed for future tax returns, justify social security benefits and more
  • Stock acquisition data, which should be kept for at least 4 years after the stock is sold so that you can prove the profit or loss on the sale
  • Statements for stocks and mutual funds with reinvested dividends should be kept for at least 4 years after final sale
  • Tangible property purchase and improvement records should be kept for at least 4 years after the property in question has been sold

Consult Your Advisor for Tax Advice

If you aren’t sure what to keep and what to throw away, you should contact Miles Tax Advisory today. We can work you through all of your options and help you determine what to do. We are always here to assist you!