What Records Should I Keep And

How Long Should I Keep Them?

by Terry Sustar


This is probably the most frequently asked question I hear during a tax preparation interview.  We suggest that you never destroy your tax returns and W2’s. With that in mind remember the Internal Revenue Service has up to three years from the date you file your tax return to examine it for errors and as long as six years to conduct an audit if there's reason to suspect you underreported your gross income by 25 percent or more. (There is no statute of limitations for anyone who has deliberately committed fraud.) Indeed, you'll need to keep any paperwork that supports your return until that audit window closes. So, with that in mind, here is a list of different documents and how long you should keep them:


Income tax returns and supporting documents:  You need to retain actual income tax returns and supporting documents for at least seven years (forever is better).  Once this period has elapsed, the documents may be discarded, but the returns themselves do not take much space and should probably be retained indefinitely.  Remember, for identity safety, you should always use a shredder when discarding documents of this nature.  Any W2’s should he kept until you start receiving Social Security in case there is a dispute as to what your wages were throughout your lifetime.


Residential property records:  All escrow closing statements (purchase, sale, and any refinance escrow statements) plus receipts for improvements should be kept for at least seven years after the property is sold.


Buy/Sell confirmations for stocks, bonds, mutual funds: Keep for at least seven years after the asset is sold. This would include the record of stock dividends, splits, and reinvested dividends.


Depreciation records:  For any rental real estate or depreciable business property you own, keep records of the property’s cost, date acquired, and schedule of depreciation claimed in previous years.  These records should be kept until seven years after the property is sold or exchanged.


Retirement plan contributions: Records of non-deductible IRA deposits, employer plan stock purchased, rollovers, KEOGH plan deposits, and any other retirement plan deposits should be kept until seven years after the plan assets have been withdrawn.


Personal records: Important papers such as estate and gift tax returns, divorce and property settlement agreements, deeds, title insurance policies, and all trust documents should be kept in a permanent file, or perhaps in a safe deposit box.


Miscellaneous papers: All other documents including bank statements, canceled checks, credit card statements, deposit slips, charitable contributions receipts, and medical bills may be discarded after seven years.


Unless you've knowingly submitted a false return, you can toss supporting documents (other than those excepted above) after seven years, depending on how straightforward your tax situation is.


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