Taxes 
4
comments

How Long Should You Keep Your Tax Records?

Email  Print Print  

I don’t have any evidence of this but I would guess that the one of biggest mistakes made by most of us during the year is not keeping important receipts and paperwork. I don’t know many people who claim that they have a talent for keeping their important documents organized. In fact, most of the people I know are the type that can’t keep track of things at all and that can be detrimental during tax season.

Since its tax time, how long is long enough to keep your tax or financial documents? When can you throw them away or should you ever?

How Long?

You should keep your tax documents as long as you can. Although the IRS generally has up to three years to request an audit, there are plenty of reasons to save those documents for a much longer period of time. First, they contain historical information about your income and other financial metrics. If you’re applying for a mortgage or certain insurance products, your tax return contains much of the information you need for the application.

Before using Turbotax, I used to thumb through as many past years of returns as I could to help my remember past deductions and I have even used my returns as a way to measure how well I’m meeting my personal income targets. Your tax return serves as a great financial snapshot.

For these reasons, it’s best to keep your tax returns indefinitely but parts of your return can be shredded after three years. Your W-2s, 1099s, and other supporting documents probably aren’t needed for more than three years.

Investment Information

Knowing your cost basis for all of your investments becomes important when you finally sell it causing a realized gain that subjects you to the capital gains and/or dividend tax. Although that information is easily found on your broker’s website, it might take some digging if you have to find it 20 or 30 years after you purchased the product and how do you know that your broker won’t get bought out and their computers are purged of old information? It happened to me once when my bank was purchased. Keep this information as long as you hold the investment.

Scan it!

Modern technology leaves us no excuses when it comes to holding on to important documents. Not long ago, I ordered a scanner from one of the online computer stores and paid $49 for it. I’ve scanned all of my old financial records freeing up a lot of file cabinet space. Then, I took those records, made a password protected file out of them, and put them in my dropbox account. Since I’m the better safe than sorry kind of person, I put them on a CD (because a flash drive is small and much more easily lost) and gave the CD to my mother to keep at her house.

Bank Records

When I was growing up my parents kept multiple file cabinets of bank and investment statements. I, as an adult, don’t do that. I can find all of my bank statements online and my bank offers access as far back as four years free of charge.

It may be well advised to download these records and store them in digital format along with your tax returns if you are worried that those records would become unavailable on your bank’s website if they were purchased or went out of business. Although bank records probably aren’t need much longer than your tax return, keeping these archived in digital format makes it easy to save them indefinitely.

Finally

Tax returns, much like your birth certificate should never be thrown away. Instead, scan and archive. As technology changes you may have to transfer it to the latest storage device. Other supporting documents to your tax return need to stay with you for at least three years but while you’re scanning your tax return, you could scan the accompanying documents as well.

{ 4 comments, please add your thoughts now! }

Related Posts


RSS Subscribe Like this article? Get all the latest articles sent to your email for free every day. Enter your email address and click "Subscribe." Your email will only be used for this daily subscription and you can unsubscribe anytime.

4 Responses to “How Long Should You Keep Your Tax Records?”

  1. Aaron B says:

    I personally *never* trust any online financial site to store records for as long as I’ll need them. I download (or “print” to PDF) everything that I used to receive in the mail (monthly statements, end of year reports, etc.). Thebank I use for my condo association (I’m the treasurer) only provides 1 year of old statements, and only 1 month (!!!) of past transactions. My personal credit union is much better, but when my old credit union merged with another one, all the old information was no longer online and I was glad to have my local copies.

    For taxes, I file online, and I make a PDF file of the return + worksheet forms, then I do a real printout just to be safe (double-sided, two pages to a side–because I can read text that small for now, and I most likely will never actually need to use it).

  2. Ray says:

    i figure 3 years should be sufficient, but in the age of cheap digital storage, maybe just scan everything, archive it, and forget it.

  3. Shirley says:

    When my parents died I was faced with a box of their past tax returns for the last 25 years. My Dad kept everything, including each years’ filing instruction booklets!

    Two years after their deaths I started shredding anything with their names on it and it was such a chore that I immediately went through our own and digitalized the last seven years. Hopefully our kids will never have a chore like that.

  4. Harold - CA@SPWCA says:

    Well said! One shall keep records and tax returns for years that include a typical transactions (sales or donations of property) and irregular income. Actually the IRS can audit you as far back as they want. There is NO law or restriction on time


Please Leave a Reply
Bargaineering Comment Policy


Previous Article: «
Next Article: »
Advertising Disclosure: Bargaineering may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website.
About | Contact Me | Privacy Policy/Your California Privacy Rights | Terms of Use | Press
Copyright © 2014 by www.Bargaineering.com. All rights reserved.