Record Retention

How Long Do Federal and State Tax Returns Need to Be Kept?

If the IRS or state tax authorities question your tax deductions or business expenses or losses you may need a copy of your return

IRS Documentation Requirements

The IRS recommends taxpayers keep their returns & any supporting documents for 3 years after the date of filing; after that, the statute of limitations for IRS audit expires.

However if you have under-reported income by 25 percent the IRS can go back 6 year, or 7 years if you claim a loss for bad debt or worthless securities.

If you didn’t file or filed a fraudulent return, the IRS has no statue of limitations; so it may be best to keep your records indefinitely.

Record-keeping on Assets

The IRS recommends hanging on to your files for assets until the statue of limitations expires for the year in which you sell them.

Examples include stocks, bonds, or ¬†even your home. If you sell your home you will need a record of the purchase price & any improvements you’ve made to figure out the basis for your capital-gains tax. If you claim depreciation on rental or business assets you will need to keep those records.

State Documentation Requirements

The time you need to keep records depend on state law. Some states can look back further than the IRS. California & Arizona for example have a 4 year statute while Montana has a 5 year statute. Check with your state tax authority to get your specifics.