How long to keep tax records, according to the IRS

Milaspage/iStock/Getty Images PlusHow long should you keep tax records? At least 3 years.

You don’t have to save your tax returns forever, but it’s smart to keep them on hand for a few years.

In general, the IRS recommends holding on to copies for at least three years – the typical length of time the IRS would look back if you happen to get audited.

Most audits cover returns filed over the past two years, but the IRS can go back further if the situation calls for it. However, audits shouldn’t be cause for worry for most taxpayers. Fewer than 1% of tax returns are audited by the IRS.

But having your tax records handy can make it easier to fill out a mortgage application or the Free Application for Federal Student Aid (FAFSA). You’ll also need your adjusted gross income (AGI) from last year’s tax return to verify your identity when you file your current return.

If you file with the same tax software every year, it will usually store your completed returns, but you should also download and keep a copy somewhere under lock-and-key or password protected. Your return has very sensitive information that fraudsters can use to assume your identity.

The IRS also recommends storing the documents used to fill out your tax return, including your W-2 or 1099s, as well as any investment and bank statements. Keep health insurance records, including documentation of employer-provided coverage and premiums paid, as well.

Some tax situations require keeping records for up to 7 years

For those with more complicated tax returns, many accountants suggest holding on to tax returns for six years, due to the IRS’ statute of limitations for underreported income. Under this rule, the IRS extends the look back period to six years when there is a substantial omission of income, defined as 25% or more of the taxpayer’s gross income on the return.

The IRS recommends keeping tax documents related to real estate for up to seven years after the sale. Documents claiming a worthless securities loss or bad debt deduction should also be saved for seven years after you file your tax return.

If you misplace or accidentally throw out old tax returns, you can request a copy from the last six years from the IRS by filing out Form 4506 and mailing it in. The fee per copy is $US50 and it could take up to 75 days to arrive.

Tax transcripts, however, are free and available online in five to 10 days for the current tax year and usually the previous three years. A tax return transcript will show most line items, including your AGI and any additional forms or schedules filed, but won’t show any changes or amendments made to the original return. Other transcripts, such as the wage and income transcript and tax account transcript, can provide tax information from the past 10 years.

If and when you dispose of old tax returns, make sure to properly shred the documents to protect against identity theft.

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