If you live in the U.S. how long do you personally keep financial records in case you are audited for taxes (either state or federal) or for other reasons?
Thanks.
The usual rule of thumb is 7 years.
It’s based on the statutes of limitation. The IRS can audit (requiring you to produce records) for 3 years for any reason, 6 years if there’s a 25% understatement of income or forever if there’s fraud. So, assuming no fraud, 6 years is the longest that the IRS can initiate the audit.
However, long-lived assets (like homes, rental properties, partnership/stock investments and business equipment) may require records to be kept for as long as you own the asset. When you sell an asset like a house, you might have to prove your cost to purchase and improve it, and you might also have to prove your depreciation amounts.
So I’m a big fan of electronic records that you keep forever.
I would say 10 years to be on the very safe side, but in all honestly I have them back even further than that because I have room in that file cabinet.
7 years is probably all you actually need except for particular items as noted by dracoi
Usually just 7 years, but after some IRS troubles way back I kept everything going back much longer than that until I was sure everything was resolved. 7 years should be fine for most people.
How exactly do you measure 7 years? For example suppose you filed on April 15 this year. What would you throw away on April 16? Or would you throw away on January 1?
The seven years is just a rule of thumb to simplify some fairly complex statutes of limitation, so I wouldn’t try to obsess too much over how to apply that. Overall, though, think of it as seven years starting the date you filed the return.
How can I know I’m not going to be accused of tax fraud 10, 15 or 20 years from now? What you’re saying logically means that we can’t ever get rid of our tax records, if we want to be able to defend ourselves against a future fraud charge, since there’s no statute of limitations on it.
Yep.
Perhaps a tax attorney knows the specifics better than I do, but my understanding is a charge of fraud requires the IRS to get the Dept of Justice involved (the IRS is a part of the Treasury Dept). And now that we’re dealing with a criminal proceeding, you have other protections under the law. There’s a statute of limitations on fraud itself, and there are warrants, reasonable cause, etc. So it is an entirely different process for the IRS to accuse you of fraud than to conduct an audit within the three-year period, where the IRS can audit you for any reason (or no reason) whatsoever.
But to circle back around to what you said… that is a very good reason to keep all of your records forever.
In my case, back to the 1970s. This is balanced by my partner, who doesn’t even save this year’s records.
0.0 years or indefinitely depending on how you look at it. I don’t really know what ‘tax records’ mean unless you are talking about paper based receipts to a small business. In personal terms, everything I have is either electronic or none of the IRS’s business so there are no personal records. I could always have W-2 forms or brokerage account statements from any year recreated if I needed them for example. I can do that online without anyone else involved.
That reminds me of the concept of ‘balancing your checkbook’. It makes no sense in my financial world. Everything is electronic. Payments go in and debits go out. There are no math mistakes. You just check for fraudulent entries which takes less than a minute every two days.
What types of personal tax records do people feel the need to keep in paper form these days? Most of them are just print-outs of the real (electronic) records and they can be regenerated if the unlikely need for them ever arises.
I have all my tax records going back to 1993.
Why do we keep paper copies, Shagnasty? Because electronic copies can be incorrect, deleted, or “different” enough not to be accepted by whoever requests it. With a paper copy, I know exactly what was sent to the IRS in the days before e-filing… and I still do today. Since 1993 I’ve gone through 4 accountants, 2 tax preparation programs, and God knows how many computers, and I don’t really see how depending upon the electronic memory of others is as easy and secure and accurate as depending upon the actual paper filed away, in my possession.
This year, my tax return with supporting forms was 15 pages. Why wouldn’t I just print that out and throw it in the safe with all the others? Why would I keep it at the mercy of hard drives that fail, clouds that are not secure, and the inconsistent data retention policies of others? I have specialized accounts at Wells Fargo and it still took them two days to find tax documents dating all the way back to… 2012.
And I wouldn’t blithely assume that the electronic document is the “real” number, either. While the electronic records contain the fields from which the paper document is printed, the values within those fields may have been changed since filing day. Without a paper copy that shows you exactly what these values were on 4-15-XXXX, how can you argue that the new value is incorrect and that somebody, somewhere, since then made a mistake?
I have the returns and all supporting documents going back to 1993, my first full year of “professional” work. The packet for 2013 is thicker than 1993 to 1997 put together, but I will be retired before I fill us the second bankers box at the rate we are going. I just don’t see any downside.
I don’t keep records, nor do I know of any reason I should go to the trouble of doing so. I own no real assets or financial instruments, we file income taxes taking the standard deduction, and do not spend money on the kinds o things that would make itemization worthwhile.
If I were to be subjected to an audit, I presume the officials would bring along the relevamt tax returns. The only supporting documentation that would apply would be my W-2.
I keep records for about 3 years. My taxes are quite simple, standard deduction only. I’ve worked for only 2 employers in that period, so if I absolutely needed the w2 again, I’m sure I could get it.
As the OP, I should have noted that I am a self-employed small businessmen with myself as the solo employee–so I have the usual receipts for sales and expenses.
Thanks for the responses so far.
I stack them up on a shelf in a closet, and let the stack grow until I move, when I throw most of it in the dumpster. I haven’t filed a tax return since 1991, and I rarely need to look through them.
My tax records are w2’s. I have them all…somewhere for about a decade.
A couple of responses to comments I’ve seen here:
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“I could get my W2’s online anytime if I wanted.” Have you ever tried to get one more than, say, 7 years old? I can tell you from firsthand experience - probably not happening. Why should your former employers care more about your old data than you do?
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“My finances are simple, I have no need for old tax records.” But they’re probably not so simple that you’ll never have to work again, and employers sometimes demand historical W-2 forms to verify your work history. Of course you can refuse if you’re really not interested in working. Think you can squeak by with employment verification from your previous employers? Firsthand experience… I worked with a previous employer for 9 years, but they refused to verify anything but the final 2 years. The reason? "Oh, that’s the only time period that falls within our record retention limit.
Bottom line… if your priorities include getting jobs in the future, keep all your historical income statements forever. You’re a fool to trust your former employers or online services that someone else is paying for.