How Long to Save Tax Returns
It is important to keep your tax returns for a certain period of time, as you may need them for a variety of reasons in the future. Knowing how long to save your tax returns is essential for ensuring that you are able to access them in the event of an audit, or if you need to reference information from a previous year.
In general, the Internal Revenue Service (IRS) recommends that taxpayers save their returns for a minimum of three years. This means that if you are filing a return for the 2020 tax year, you should keep your 2020 return, as well as the returns from 2019 and 2018. The three-year rule also applies to amended returns, in which case you should keep records of your original return as well as the amended version.
In some cases, you may need to keep your tax returns for longer than three years. For example, if you have not reported all of your income, you should keep your returns for a period of six years. If you have underreported your income by 25 percent or more, then you should keep your returns for a period of seven years. Additionally, if you have claimed a loss from a business or rental property, you should keep your returns for a period of seven years in case of an audit.
It is also important to note that certain documents should be kept indefinitely. These include records from home improvements, as well as any records related to investments that have been held for more than one year, such as stocks, bonds and mutual funds.
When it comes to saving your tax returns, it is important to make sure that you have a secure system in place for storing your documents. You can choose to keep paper copies of your returns in a safe place, or you can store them electronically on your computer or in the cloud. Additionally, it is a good idea to make a copy of your returns before sending them to the IRS, as this can make it easier to access your records in the future.
Overall, it is important to know how long to save your tax returns. In most cases, the IRS recommends that taxpayers keep their returns for at least three years. However, in certain cases, you may need to keep your returns for a longer period of time. It is also important to make sure that you have a secure system in place for storing your documents.
10 Tips To How long to Save Tax Returns
1. Taxpayers should keep tax returns for at least 3 years. This is because the IRS has up to three years to audit a return and challenge any deductions or credits claimed. For example, if someone filed their 2018 taxes in 2019, they should keep those records until at least 2022.
2. Keep returns that involve large or complex transactions: If you've ever sold a property, conducted a complex business transaction, or filed for an extension, you should keep the related tax returns indefinitely. This will help you prove your case if you're ever audited.
3. Keep returns that are part of a pending case: If you're involved in an ongoing dispute with the IRS, you should keep your tax returns until the case is resolved. You should also keep any records and documents related to the dispute.
4. Set a reminder: Set a reminder to review your tax returns each year. This will help you ensure that your returns are up-to-date and accurate.
5. Retirement Account Contributions: If you contribute to a retirement account such as a 401(k) or an IRA, you should save the related tax documents until you withdraw the funds. This includes contributions and withdrawals, and any related tax forms.
6. Home Improvements: If you made any home improvements, such as installing a new furnace or roof, you should save all related receipts and tax documents for at least three years. This will help you prove the cost and any associated tax credits or deductions.
7. Charitable Contributions: If you make any charitable donations, you should save the related tax documents for at least three years. This includes receipts and any other related forms from the organization.
8. Business Records: If you're self-employed or own a business, you should save all related tax documents for at least three years. This includes income and expense reports, contracts, invoices, and other records.
9. If a taxpayer has filed a claim for a loss from worthless securities or bad debt, they should keep their tax returns for 7 years. For example, if someone filed this claim for the 2019 tax year, they should keep those records until at least 2026.
10. Consider keeping prior year returns and any related documents indefinitely. This can be especially important if you're audited or if you're ever involved in a dispute with the IRS. An example would be if you are claiming a large business deduction that is disputed by the IRS. Having your prior year tax return and related documents can help you prove your case.