Tax Records: What Can You Toss and What Should You Keep?

Maintaining accurate tax records is essential for financial organization, and knowing what to keep and for how long can save space, reduce the risk of identity theft, and ensure you’re prepared for any potential audits. The IRS generally has three years to audit your tax return from either the due date or the date you filed, whichever is later. You also have three years to file an amended return if needed. In this blog, we’ll break down which records to keep and for how long, so you can organize and safely dispose of unneeded documents with confidence.

Federal Tax Records

Although the IRS typically has a three-year statute of limitations, many tax advisors recommend holding onto a copy of each completed tax return indefinitely as proof of filing. If you don’t want to store them indefinitely, a safe rule is to keep them for at least six years after the due date or filing date. This approach provides added protection in case of any IRS inquiries outside the standard three-year period.

State Tax Records

State tax record requirements can vary, and each state has its own statute of limitations. It’s a good idea to contact your state tax office to understand your state’s specific guidelines. Additionally, states may have the right to examine issues related to federal tax returns that have been audited. To cover your bases, keep any records related to an IRS-audited return for at least a year after the audit is completed.

Real Estate Records

Real estate records should be kept for as long as you own the property, plus an additional three years after you sell it and report the transaction on your tax return. It’s important to maintain a comprehensive file that includes your purchase documents, receipts for improvements, relevant insurance claims, and refinancing paperwork. These records are essential for determining cost basis and calculating capital gains when you eventually sell.

Investment Account Statements

To report your investments accurately, you’ll need to keep detailed records, including purchase dates, sale dates, quantities, prices, dividend reinvestment, and any associated expenses. Keep these records for as long as you own the investment, plus an additional period until the IRS statute of limitations expires for the relevant tax year. This documentation helps ensure accuracy when calculating gains or losses.

Purging with Caution

While holding onto certain records is crucial, so is safe disposal when it’s time to let go. Improperly discarding documents with sensitive information increases your risk of identity theft. To avoid this, shred any documents you no longer need. If you’re uncertain about discarding a particular record, it’s generally safer to keep it a bit longer than you think is necessary.

Conclusion

Keeping well-organized tax records can save time, reduce stress, and help you avoid penalties if the IRS ever has questions. If you have specific questions about your record retention needs, don’t hesitate to reach out to Guerrero CPA at 210-490-7100. Our team can guide you on record-keeping best practices, helping you manage your tax records effectively and securely.