Dealing with tax season can be stressful, but one question often lingers long after filing your returns: how long should I keep tax returns and related documents? The answer depends on your specific situation, but following some simple guidelines can ensure you’re prepared if the IRS comes knocking.
How Many Years of Tax Returns Should You Keep?
As a general rule, the IRS recommends keeping your tax records for at least three years after filing. This three-year period is a safeguard in case the IRS identifies errors and decides to conduct an audit. There are some exceptions though:
- If you underreported income by more than 25%, keep records for six years
- For documents related to assets/property, keep records for at least three years after you dispose of the asset
- For business employment tax records, keep for at least four years
For many individuals and small businesses, hanging on to six years of tax returns and supporting documents is a wise move to cover most scenarios.
Best Practices for Organizing and Archiving Tax Documents
With how long to keep tax returns answered, let’s discuss some smart strategies for keeping your related paperwork organized:
- Use a filing cabinet or document box devoted solely to tax records with divider folders for each year.
- Scan important documents and backup digital files, in case originals are lost/damaged.
- Keep detailed logs of income, expenses, charitable donations, etc. to support your filings.
- Arrange records chronologically with the most recent year in front for easy access.
- Purge records you no longer need each year, shredding sensitive documents.
By following IRS guidelines on how long should I keep tax returns and having an organized system, you can minimize stress and headaches at tax time each year. Proper record keeping protects you in audits and provides a tidy archive of your financial life.
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