The length of time you should keep a document depends on the action, expense, or event the document records. You must keep your records as long as they may be needed to prove the income or deductions on a tax return. For more information on the responsibility to prove entries, deductions, and statements made on your tax returns, refer to what is the burden of proof?
The time you are required to keep records includes the period of time during which you can amend your tax return to claim a credit or refund, or that the IRS can assess more tax. It is never less than three years from the due date of the return, and can be longer. You should also keep copies of your filed tax returns in the following situations:
You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.
You file a fraudulent income tax return, keep records indefinitely.
You do not file a return, keep records indefinitely.
You file a claim for credit or refund* after you file your return, keep records the later of: 3 years or 2 years after tax was paid.
Your claim is due to a bad debt deduction; keep records for 7 years.
Your claim is due to a loss from worthless securities; keep records for 7 years.
Keep information on an asset for the life of the asset, even when you dispose of the asset; keep records indefinitely.
The following questions should be applied to each record as you decide whether to keep a document or throw it away:
- Do the records support an entry on my tax return?
- Records you could use to verify the information you report on your tax return should be kept as long as an audit is possible. The IRS normally has 3 years to audit a return. That period, called a statute of limitations, begins the day the return is filed, or the due date if the return is filed earlier, and can be extended for a number of reasons. Examples include 2 to 3 years following additional claims filed later by you, or a total of 6 years for understating your income by more than 25 percent. For records that would help you through an audit, a conservative approach is to keep them for 7 years.
- Are the records connected to business property?
- Some records establish the basis (or value) of property for depreciation deductions or for calculating the gain or loss at sale. These records should be held for as long as you have the property plus the same 7 years as above.
- Do the records support deductions that will be applied to other tax years?
- Sometimes deductions, such as limited charitable contributions, casualty losses, or net operating losses, are carried forward or backward and applied to other tax years. Records that substantiate the original loss or expense should be retained for as many years as you are carrying forward the deduction plus the same 7 years as above.
Resources from the IRS that may be helpful:
Publication 535, Business Expenses
Publication 536, Net Operating Losses
Publication 547, Casualties, Disasters, and Thefts (Business and Non-Business)
Publication 594, IRS Collection Process (PDF)
Publication 583, Starting a Business and Keeping Records
Publication 225, Farmer's Tax Guide