How long you should keep your tax returns, and supporting documentation, is an issue of much debate in the personal finance world. Some people say seven years, some people say keep it forever, and some people say it isn’t worth the space. Ok well most people probably don’t say it isn’t worth the space but really how long are we supposed to keep this crap for. I just looked in my cabinet and I have returns from 2000-2008, that is eight years. Of course further inspection shows I really only have all the documents since about 2002 or 2003 and just returns through 2000. Looking at this mess I wondered how long do I need to keep this crap. Seriously that is all it is to me is stuff that should be shredded and recycled. Giant wastes of paper sitting in a drawer taking up space. Unfortunately the IRS doesn’t agree with my assessment so lets look at what they have to say about the matter.
According to the IRS the maximum amount of time you should hang on to any tax related document is, well forever actually. If you file a “Fraudulent return” or don’t file a return the IRS says you need to keep you records indefinitely. That means forever folks. Of course if you are filing fraudulent returns it probably isn’t going to help if you kept the records to prove it was fraudulent.
The Real Deal
I am assuming you are all honest people and aren’t trying to cheat the system. There are several different scenarios that affect how long you should keep your records on hand. According to the IRS:
- Keep all employment records for at least 4 years after the tax is due or paid, whichever is later
- Keep records for 7 years if you file a claim for worthless securities or bad debt.
- Keep records for 6 years if you fail to report income and it is more than 25% of your gross income shown on your return
So What Should You Do?
If you are filing returns and not doing it fraudulently the maximum amount of time the IRS thinks you should hold on to your documents is 7 years. Odds are that is going to be beyond what you need to do for most people so why not just stick with it and hold them for 7 years. That way if the IRS comes knocking on your door you are covered back through 7 years. At the very least keep your records for 4 years to meet the requirements for employment records.
I would love to hear from everyone on how many years of records they currently have and if they think they would pass an audit, leave me a comment and let me know.