Advertisement

Here’s How Long You Should Hold Onto Tax Filing Paperwork, According to an Expert

Heather Taylor
·2 min read
Yaroslav Olieinikov / iStock.com
Yaroslav Olieinikov / iStock.com

Do you ever wonder how long you should hang onto your tax paperwork? This form of recordkeeping may lead taxpayers to ask how long they need to keep and store documentation or if they are meant to keep it forever.

Lauren Wybar, CFP and senior wealth advisor at Vanguard Personal Advisor Services, joins GOBankingRates to share the general guidelines for maintaining tax records. Here’s how long you should hold onto tax filing paperwork.

Be Aware: IRS Increases Gift and Estate Tax Exempt Limits — Here’s How Much You Can Give Without Paying
Read More: Owe Money to the IRS? Most People Don’t Realize They Should Do This One Thing

Sponsored: Credit card debt keeping you up at night? Find out if you can reduce your debt with these 3 steps

The ‘Three-Year Law’ of Storing Tax Records

Per the IRS, the general rule of thumb for individuals is to maintain copies of tax returns and supporting documents for three years. Wybar said this is also known as the “three-year law.”

Wybar said this can lead many taxpayers to believe they’re safe because this time period accounts for the statute of limitations on IRS audits.

Find Out: Billionaires vs. the Middle Class: Who Pays More in Taxes?

Preferred Backup Recommendation — 6 Years

There is a “but” for taxpayers who think they only need to maintain the last three years of their tax records. Wybar said if the IRS believes one has significantly underreported their income, by 25% or more, or there may be an indication of fraud, they can audit as far back as six years.

The preferred Vanguard recommendation is to store tax documentation for six years. This includes supporting tax return documents, medical bills (if they are tax-related) and any other tax-related bills.

Do You Need To Hold Onto These Documents Forever?

There are no federal guidelines indicating one should keep their tax records forever. However, Wybar said there may be other reasons to retain these documents indefinitely.

You may have documents that fit into the personal records category, such as:

  • Income tax returns

  • Income tax payment checks

  • CPA audits reports

  • Retirement and pension records

  • Investment trade confirmations

  • Legal records

Or your business records may include:

  • Tax returns and worksheets

  • Canceled checks for important tax payments

  • Year-end financial statements

  • Audit reports from CPAs/accountants

  • Cash books/charts of accounts

In addition to maintaining any print documentation of these records, it’s also important to create an electronic backup set of these records. Vanguard recommends backing these files up online. This ensures the data is fully protected, especially in the wake of a natural disaster or crisis.

More From GOBankingRates

This article originally appeared on GOBankingRates.com: Here’s How Long You Should Hold Onto Tax Filing Paperwork, According to an Expert