Tax Records – When to Keep Them, When to Toss Them

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Here’s more advice from the tax expert we recommend to all of our clients. Previously, they shared advice on tax preparation. This time, they discuss how long you need to hold on to all those tax related receipts and documents.

When to Toss Them

Many people are uncertain what records to keep and when to throw them out. Keep all your receipts for four years. This includes any receipts that will document deductions you are claiming, W2s, 1099s, etc.

After four years, you can destroy those receipts. That’s because the statute of limitations for assessing additional taxes generally runs three years from the date you file your return.

Once that period has expired, the IRS is legally prohibited from even asking you questions about those returns. There are some exceptions to this rule:

  • If you under-report your income by more than 25% on your return, the limitations period is six years.
  • Claiming losses for worthless securities extends the limitation period to seven years.
  • If you file a fraudulent return or no return at all, there is no statute of limitations.

When to Keep Them

These are a few of the tax records you may need to keep longer

  • Investment gains and losses. You may have bought a stock five, ten or even twenty years ago. Keep all those records for three years after you sell and file the return reporting the sale.
  • Home purchase and improvement expenses. These should be kept until you sell the home. If your profit is more than $250,000 ($500,000 on a joint return), or you don’t qualify for the full profit exclusion, then you’ll need those records for three years after you file the return showing the home sale.
  • Actual tax returns. The IRS has the right to audit returns for up to seven years so you should keep these returns for this time period.

For more advice from experts in areas of financial planning, get a free copy of Brian Fricke’s book, Worry Free Retirement.

About Brian Fricke, CFP®
Brian L. Fricke is a Fee Only® Financial Planner, Author, Speaker and Incredible Retirement® Expert.