How long should I keep tax records?

By Manny Kaur and Emily Irving

It’s not Spring yet, but tax time is a good time to clean out the file cabinet.  One question we get from our individual clients is “How long should I keep tax records?”  Here is our guidance:

Generally, you must retain records that support an item of income, deduction or credit shown on your tax return for three years from the due date of the return or the date the tax return was filed, whichever is later.  That means, if you file your tax return on March 17, 2016, you should keep your tax records and returns until April 15, 2019.  On April 16, 2019, you can shred all tax return support.  If you file for an extension until October 15, 2016, then the record retention date gets extended to October 15, 2019.

Here are our exceptions:

1. Always keep the original copy of the tax returns (federal and state). No exception, Always!!!
2. Keep all documents pertaining to the purchase and improvement of real property. These documents would also include loan refinance documentation. You may shred these documents three years after the due date of the tax return filed to report the sale of the property.
3. If the property in #2 above is a rental property, also keep detailed schedules of annual depreciation.
4. Keep all documents pertaining to securities purchases and reinvested dividends for securities not held by a broker. If you move the investment to a broker, make sure the new broker has the correct basis. You may shred these documents three years after the due date of the tax return filed to report the sale of the investment.
5. Keep all documents pertaining to an investment in a small business. Keep track of additional contributions to the investment and repayments of capital. These transactions represent your basis. You may shred these documents three years from the due date of the tax return filed to report the sale of the business interest.
6. Keep documents relating to post-tax contributions to retirement or pension accounts indefinitely.

The IRS suggests you keep records indefinitely for years you do not file a return. Sooner or later they may want to see them!

If you have a unique retention question, feel free to contact our office. We would be happy to provide you guidance.

Please Note: Business clients have a separate set of record retention rules.