Tax Records: How Long Should You Keep It?

Triston Martin

Jan 27, 2024

Consider retaining certain records even if you don't need them for tax purposes. If your income is in question, it's a good idea to save W-2 forms until you begin getting Social Security benefits.

How long you should retain various tax records and documents is laid forth here. You can, of course, hold on to them for a longer period if you prefer. But don't turn into a hoarder!

One Year

Make sure to save your pay stubs until you compare them to your W-2s. Pay stubs can be destroyed after all the totals are equal. If your year-end statements and 1099s match up with your monthly brokerage statements, you may normally get rid of them.

Three Years

As a general rule, you should keep all documentation supporting your tax return claims for at least three years after the end of the tax-filing period. This includes, but is not limited to:

  • Forms W-2, 1099, and 1098 are used to report income and capital gains, dividends, and interest on assets.
  • Canceled charitable donations and receipts;
  • Health savings account and 529 college savings plan withdrawal records, as well as records of contributions to a tax-deductible retirement savings plan, such as a regular IRA, should be kept.
  • If you're like most Americans and don't itemize your deductions on Schedule A, you may be able to reduce the amount of paperwork you keep. Maintaining gift receipts or canceled checks is unnecessary if you're not claiming a tax deduction for charitable contributions. (Note, however, that individuals who do not itemize their deductions can deduct up to $300 in 2021 for charitable contributions of cash.)

Six Years

If you haven't reported at least 25% of your income, the IRS has up to six years to begin an examination. With many 1099s reporting business incomes from various sources, it can be easy to miss one or forget reporting some income for the self-employed. Keep their receipts and records of business spending for at least six years to be on the safe side.

The IRS has six years from the date you filed your return to assess tax on any income due to foreign financial assets that you did not report. To avoid a six-year delay, keep all records relating to such revenue.

Seven Years

Some of your stock picks fail, or you lend money to your brother-in-law, who doesn't pay you back. Because of this, you may have the ability to write off your worthless stocks or bad loans. However, you must maintain all relevant records and documentation for a minimum of seven years after the event. Bad debt deductions and losses from worthless securities can be claimed for two years.

Ten Years

You may be eligible for a credit or deduction on your U.S. tax return if you paid taxes to another country, and you get to select whether you want a credit or deduction. Within ten years of claiming a deduction for a given year, you have the option of amending your return and claiming a credit instead. Correcting an earlier claimed overseas tax credit is also possible within ten years. As a result, keep all records and documents relating to the payment of foreign taxes for a minimum of ten years.

Property and Investments

You should keep track of your investments and real estate for at least three years after you've sold it. A Roth IRA contribution record should be kept for three years after the account is closed. When you withdraw the money, you'll need these records to prove that you already paid taxes on the donations and don't have to pay them again.

It's a good idea to save on any investment documents that show purchases made in a taxable account for three years after you sell the securities. To determine your taxable gains or losses when you sell an investment, you'll need to declare the purchase date and price on your tax return for the year they were sold. For mutual funds and ETFs purchased in 2012 and after, brokers must report the cost basis of the stock. However, you should save your records if you decide to switch brokers. The basis for selling an investment you inherited should be calculated based on its worth on the date the original owner passed away.

How To Keep Track of Your Taxes

In the event of an IRS audit, it is important to know that you may need to retrieve your tax returns again. It's best to avoid keeping a shoebox full of papers and data spread around your hard drive.

When organizing your financial records, you should create a file system that categorizes them by year and type, such as bank statements, tax forms, and receipts. If the IRS asks for something from the past, you'll be able to track it down quickly if you maintain that structure throughout the year so that everything makes sense when you file.

It's possible to digitize and simplify your life if you're still dealing with a lot of paper, such as Expensify or CamScanner.

Tax Records: How to Safely Dispose of Them

Getting your tax documents would be a thief's dream come true, so remember that when it's time to say goodbye to that mound of paperwork! Getting rid of these documents, which contain personal information such as your name, address, and Social Security number is a time-consuming process.

Flores advises that you keep your personal information protected when you dispose of tax records. Identity theft can occur if you do not properly dispose of your old computers and paper documents. Maintain an encrypted backup of all documents, whether they are in print or electronic form."

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