Dennis Fritz CPA’s Guide for How Long to Keep Tax Documents

Things are pretty interesting over at Twitter right now. 

The removal of blue ticks from the accounts of well-known public figures and companies has some scrambling to prove authenticity (including the New York City government – yikes!). Not to mention all the imitation accounts popping up on the platform wreaking a small level of havoc for those now unverified accounts.

Unfortunately, the burden of proof falls to the real accounts, not the fake ones.

There’s a lesson to be pulled from the Twitter chaos with regard to your tax documents. If the IRS ever comes to question, Is this really true? … the burden’s on you to prove it is.

Enter your tax filing paperwork. But the problem is, once your tax filing is finished, it’s easy to put those documents out of sight once everything’s been submitted. You might throw those papers in a filing cabinet, or a storage bin, or just keep them in a folder in the Cloud, but whatever you do … you’ll want to hold onto them. There are several reasons why you should, including the potential of an audit or some fake filing situation that pops up under your name, etc. 

You might be wondering how long to keep tax documents. Well, I like to talk about this every year because it’s just a good refresher as you sort through things post-tax season. And feel free to pass on this information to your Redding friends, too.

If you’re wanting to figure out how to cushion yourself a bit when it comes to a potential audit, make some tax moves to help for next year, or even protect yourself from a scam, I’m here for you. My services don’t stop on April 18. The Dennis Fritz CPA team is here for you all year long:
530-223-2277 

Now, onto what to do with those tax documents…

Dennis Fritz CPA’s Guide for How Long to Keep Tax Documents
“I make out the finest tax return of anybody I know. Nice, big, clear printing, different colored inks, all the sevens the same size …” – Felix Unger, “The Odd Couple”

When the federal tax deadline passes, we have to admit we’re usually in a celebratory mood over here at Dennis Fritz CPA. (Though it doesn’t always mean the end of tax season for my team and I. We’ll be taking care of the filing that was put on tax extension and cleaning up other details for our Redding clients.)

But keeping with the merriment… What about you? Feel relieved to have your yearly obligation to the IRS complete? It’s a good feeling. But also, not long from now, you’re going to see those papers sitting out when you’re straightening out your desk space… and you’re going to start eyeballing your tiny closets or that little filing cabinet with all the important documents and wondering how LONG to keep tax documents in those filing spots.

The answer? As with many answers relating to taxes: It depends. In this case, figuring out how long to keep those papers in your possession depends on what exactly they are. 

Tax responsibilities don’t completely end when you file your return. So, a little effort to organize now might save you a headache later.

Let’s tackle that tax document pile and see what can hit the shredder – and what you’d better keep.

What paperwork to hold onto and how long to keep tax documents?

We’ll get to storing your old tax returns themselves in a sec, but right now let’s look at how long to keep tax documents generally. 

Basically, keep things like receipts, canceled checks, and other papers that back up any income or deduction figure you put on a tax return. That includes your W-2s (“Wage and Tax Statement”) or some of the IRS Form 1099s for freelance or miscellaneous income, dividends, interest, retirement money, and so on. 

You can store them on paper or electronically (more on storage in a sec, too) – just make sure you lay hands on them down the road if you need to. 

There are periods of limitations for refund claims, which affect how long you might want to keep records. For instance, you have three years from the due date of a tax return you filed to a claim for credit or refund (or two years from the date you paid the tax, whichever’s later). 

That’s the minimum. Keep records: 

• For six years if you don’t report income that you should report and it’s more than 25% of the gross income shown on your return, or it’s attributable to foreign financial assets and is more than five grand. 
• For seven years if you file a claim for a loss from worthless securities or bad debt deduction. 
• Forever if you don’t file a return or file a fraudulent return. The feds can take as long as they want to come after you. 

Other documents are worth hanging on to for longer periods *if not forever*. Stock documents, for instance, say what you paid for an investment, which you’ll need to know if you ever sell it and have to pay capital gains tax. If you ever claim depreciation on property, you’ll need complete historical records for that, too. The IRS says to keep these in your files until the statute of limitations expires after you sell them (check with us if you’re not sure). 

The higher your income and the more complicated your return, the better it is to keep complete tax backups as long as possible. Keep your state tax documents with your federal ones. 

Some say to keep your actual tax returns forever. They’re handy for filling out future returns or if you decide to amend one someday. After a max of seven years, you can toss the backup documentation if it’s on paper. 

How to store – and how to dump

According to the good folks at the IRS, keep your records in any way that “clearly shows your income and expenses,” meaning anything from a well-worn Amazon box to scanning an old receipt into digital form and uploading it to a cloud service provider. 

The IRS seems to be encouraging the use of digital documents, though they still haven’t come right out and declared No more paper. The e-documents must be clear and identical to the paper original (usually lasting longer than your average thermal receipt, which fades quickly). 

Home desktop printers can now digitize a document and send it to a computer. You can put it on a thumb drive or other external media – which could itself be obsolete in a couple decades – or upload it to a cloud storage service. Amazon and Google are two household names that offer these; there are others. 

When it does come time to toss old tax records, DO NOT just heave them into the trash. That’s treasure for identity thieves. 

If you do have paper records, invest in a shredder. If you have stored them electronically in the cloud, your provider will help you delete them. If your records are on an old computer, wipe them before you discard the computer.

And if they’re on a thumb drive or the like, physically destroy it. Maybe a hammer? Think of it as your very own tax demo day. 

Here’s a little chart to help you remember all those timing guidelines.

(Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.) 

Taxes can sometimes seem like a never-ending task and figuring out how long to keep tax documents a pain, but we’re here to help you and all our Redding clients every step of the way. 

Someone you can trust, 

Dennis Fritz