How Long to Keep Financial Documents for Tax Purposes

Now that you’ve filed your taxes, you might be wondering how long to keep a copy of your return. The IRS has guidelines for keeping track of your past returns and your time to hold on to your information may vary based on your tax situation.

For most people, keeping tax-related documents for three years should suffice. However, you might need to hold on to your records for seven years if you claimed a loss from worthless securities. Also if you have employment tax records, you’ll need to keep those records for four years. 

Because every taxpayer has a different tax situation, you must understand how your specific situation will impact how long you need to keep your tax documents in case the IRS has questions about your filed returns or selects you for an audit. Let's look at the details:

Key takeaways

• You should keep most records for three years.
• Some records should be kept longer – for instance, keep property records for as long as you own the property.
• Records are critical if you're selected for an audit or need to amend a return.

How long should you save tax records?

Here are several points to lean on if you are confused about how long you should keep tax documents:

• Three years – Since the IRS can only go back three years to audit a tax return, in most cases you really don't need to keep records beyond that length of time. 
• Six years – The IRS can go back six years for audits in certain cases and to protect yourself in these rare situations, you may want to keep records for six years.
• As long as you own the asset – Anything related to a home purchase, stock transactions, or retirement accounts should be held onto for as long as you own the property or account.

In addition to making you more audit-proof, keeping records can be critical if you need to file an amended return because you made a mistake or omitted important information. Keeping your records can help you figure out what changes you might need to make on your amended return.

Which records should you keep for at least three years?

The records that you should hang onto for three years or more include the following: charitable contribution receipts, expense receipts, bank statements, credit card statements, invoices, mileage logs, and proofs of payment. If you run a business or are self-employed, it is safe to say that you are going to have additional records to file away – basically, you should keep any documents that back up the information reported on your business income tax returns, payroll tax returns, excise returns, etc.

General Retention Guidelines for Different Types of Documents

Here's a breakdown of how long to keep specific types of records with some additional notes for context:

• Income Records
  • W-2s, 1099s, and other income statements: Keep for at least three years. Note, however, that if you lose income records that were issued by another party (such as 1099s or W2s), you can get a copy of them from your IRS online account. Wage and income transcripts are usually available for 10 years.
• Expense Records
  • Receipts, invoices, and canceled checks supporting deductions or credits: Retain for at least three years.
• Business records
  • Maintain credit card and bank statements that corroborate income and expenses for at least three years. You should also keep point-of-sale records, payroll records (timesheets, punch cards, employee contracts, etc), and whenever possible, keep receipts to back up the expenses in your statements.
• Employment Tax Records
  • Businesses should aim to retain employment tax records for at least four years after the tax becomes due or is paid, whichever is later. That's because these records may be subject to a slightly longer audit period. The IRS can audit these returns for up to three years after the April 15th that follows the year of the payroll return. For instance, payroll returns from Q1 2025 can be audited until April 15th, 2029.
• Property and Investment Records
  • You should keep these records until you sell the property. When you sell real estate or investments, you need the basis to calculate the gain, and that's in your original sales records. You should also keep records of anything that adjusts the basis – for instance, if you get a new roof on your home, that increases the basis when you sell the home, but if you got audited, you would need to provide proof of both the original basis and the adjustments so you would need both items. 

Consequences of Inadequate Recordkeeping

Going through an IRS audit is the main reason to keep your tax documentation. If you can’t corroborate your reasons for deductions, the IRS may be able to disallow them. This could mean that you’re looking at increased tax liability, penalties, or interest on the new tax liability. Negligence penalties can apply, adding 20% of the portion of the underpayment.

It is possible to survive a tax audit without receipts, but it's a lot easier if you have the right records at your disposal. 

How to Reconstruct Lost Records

Didn't keep your records? Need them to fix a mistake? Contest an adjustment to your tax return? Or deal with an auditor? Then, consider:

• Recreate docs – Alternative documentation can be gathered by looking up old bank statements or asking businesses for a copy of receipts.
• Use the Cohan Rule – This IRS rule allows businesses to claim reasonable expenses without showing a receipt.
• Get help – Contacting a CPA or tax attorney if you are unsure of what to do next is advisable.

Again, you can also get some wage and income documents as well as previously filed returns from the IRS. 

Tips for effective recordkeeping

How do you stay on top of your records? It can be a lot but these strategies can help:

• Keep your tax documents in one place for each tax year. You might find it helpful to scan your receipts, canceled checks, and anything supporting your deductions in a secure location in the cloud or on a hard drive. Saving a copy of your return with those documents will make it easier to access in case of an audit.
• Know how long you need to save documents. Well, the standard is three years, there are exceptions. Records for things like real estate or stock transactions might need to be kept for the entire time you have possession of them.
• Focus on the benefits of proper recording keeping. Documents that you keep for the IRS retention guideline may come in handy if you need to apply for a loan. Keeping records isn’t just for anticipating an IRS audit!
• Prepare for everything. If you’re going to keep paper copies of your return, consider a fireproof container to avoid loss in a disaster.
• Schedule recordkeeping time. Set aside time each year to look through your old files and purge records that you don’t need to keep.

Frequently Asked Questions (FAQs)

How long should I keep my tax returns and supporting documents?

Most people should keep a copy of their tax records for three years, though some situations may require you to keep them for up to seven years or longer (like real estate or stocks).

What if I don't have receipts during an IRS audit?

You might be able to go back to vendors to get copies of receipts or look back at credit card statements to find information. Reconstructing records may take time, but is possible. Consult a tax professional for specific guidance.

Can I store my financial records electronically?

Yes, electronic records are acceptable. You may use a record-keeping software to keep your documents in an electronic format.

Which documents should I keep indefinitely?

Important records like birth certificates, Social Security cards, and legal documents should be kept indefinitely.

Are there specific recordkeeping requirements for businesses?

Yes, businesses should maintain detailed records of income, expenses, and employment taxes, typically for four years.