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Tax Tip: How Long to Keep a Copy of Your Tax Records


As a tax professional, I often get asked the question, Now that I've filed my 2010 federal and state income tax returns, and either paid my taxes or spent my refund, how long do I have to keep a copy of these returns?

I truly believe that you should keep the paper copy of your federal tax returns (Form 1040 or 1040A, plus all attached Schedules and Forms) forever.

This provides a permanent record of your financial history, and you never know when the information on a prior year’s return will come in handy for a variety of tax or financial reasons, or just to satisfy personal curiosity.

The time period for keeping all other records relies on the fact that the IRS, and most state tax agencies, has three years from the due date of a tax return--or filing date if you had any extensions or filed late--to audit and revise that return. If you filed your 2010 Form 1040 by the April 18, 2011 due date, “Uncle Sam” has until April 15, 2014 to audit the return and ask for additional taxes, except in the case of tax fraud. If the IRS can prove fraud on your return, it can go back forever.

I recommend keeping your state tax return and all back-up documentation that supports an item reported or deducted on your federal return for four full years. This includes all

applicable bank statements and cancelled checks, as well as W-2s, 1099s, 1098s and all appropriate receipts and bills. You can toss all such information for your 2010 tax return in December 2014.

Hold on to your individual pay stubs for the year until the IRS has received the Form W-2 for that year. Reconcile the year-to-date cumulative totals on the last pay stub for the year to the amounts reported on the W-2. If they match you can throw out all but the last pay stub. Keep the final pay stub for the year, which has the year-end cumulative numbers, with your tax return documentation for that year.

Certain documentation requires longer holding periods:

For investments in stock, bonds and mutual funds, you should keep all confirms and other appropriate back-up, such as notices of splits and records of any dividend reinvestments, for as long as you hold the investment, plus four additional years.

If you invested in a partnership or “sub-chapter S” corporation, you should keep the annual Form K-1 and paperwork you receive from the investment or business for as long as you own an interest in the entity, plus four additional years.

Similarly, if you buy real estate you should keep all closing or settlement Statements for the purchase refinancing, sale of the property and/or documentation of any capital improvements made for as long as you own the property, plus four additional years.

Category: Taxes

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