You may want to hold off on shredding your tax records even after Tax Day has passed. This is because those forms, receipts, canceled checks, and other documents could be needed later.
The IRS generally has three years after the due date of your return (or the date you file it, if later) to kick off an audit, so you should save all your tax records at least until that time has passed. But some documents may be kept even longer, and it's also a good idea to save copies of the tax return itself indefinitely.
Also think about keeping certain documents for non-tax purposes. For instance, it might be wise to save W-2 forms until you start receiving Social Security benefits so you can verify your income if there's a problem.
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Here's some information on how long you should keep certain common tax records and documents.
Tax records to keep for one year
Here is a list of records you should keep for at least one year:
- Keep pay stubs at least until you check them against your W-2s (if all the totals match, you can then shred the pay stubs).
- Take a similar approach with monthly brokerage statements.
- You can generally dispose of these statements if they match up with your year-end statements and 1099s.
Why should you keep your filed taxes for three years?
Generally speaking, you should save documents that support any income and tax deductions and credits claimed on your tax return for at least three years after the tax filing deadline. This includes saving:
- W-2 forms reporting income.
- 1099 forms showing income, capital gains, dividends, and interest on investments.
- 1098 forms if you claimed the mortgage interest deduction.
- Canceled checks and receipts for charitable contributions (if you itemize deductions).
- Records showing eligible expenses for withdrawals from health savings accounts and 529 college savings plans.
- Records showing contributions to a tax-deductible retirement-savings plan, such as a traditional IRA.
If, like most people, you don't itemize deductions on Schedule A, you might not need to save as many documents. For example, if you are not deducting charitable contributions, then you don't need to keep donation receipts or canceled checks for tax purposes.
Why should you keep your taxes for six years?
The IRS has up to six years to initiate an audit if you've neglected to report at least 25% of your income.
For self-employed people, who may receive multiple 1099s, it isn't difficult to overlook reporting some income. To be on the safe side, you should generally keep their 1099s, receipts, and other records of business expenses for at least six years.
If you don't report $5,000 or more of income attributable to foreign financial assets:
- The IRS has six years from the date you filed the return to assess tax on that income.
- So save any tax records related to such income until the six-year window is closed.
Tax records to keep for seven years
Sometimes your stock picks don't turn out so well. Or maybe you loan money to someone who doesn't pay you back. If that's the case, you might be able to write off your worthless securities or bad debts.
But make sure you keep related records and documents for at least seven years. That's how much time you have to claim a bad debt deduction or a loss from worthless securities.
(Note: Loaning money is considered a gift if you knew the person may not pay you back. Gifts are not tax-deductible, so you can't write these off as bad debts.)
Tax records to keep for ten years
If you paid taxes to a foreign government, you may be entitled to a credit or deduction on your U.S. tax return.
You’ll typically have up to 10 years to claim the Foreign Tax Credit, so you should save any tax records or documents related to foreign taxes paid for at least 10 years.
Investment tax records
When it comes to investments, you will need to save some records for at least three years after you sell.
For instance, you should keep records of contributions to a Roth IRA for three years after the account is emptied. You will need these records to show that you already paid taxes on the contributions and shouldn't be taxed on them again when the money is withdrawn.
You should also:
- Keep investing records showing purchases in a taxable account (such as transaction records for stock, bond, mutual fund, and other investment purchases) for up to three years after you sell the investments.
- Report the purchase date and price when you file your taxes for the year they're sold to establish your cost basis (original price you paid, plus other costs to acquire the security), which will determine your taxable gains or losses when you sell the investment.
Even if your broker is required to report the cost basis, it is a good idea to keep copies of these records yourself. (If you inherit stocks or funds, keep records of the value on the day the original owner died to help calculate the basis when you sell the investment.)
Tax records for property
If you inherit property or receive it as a gift, make sure you keep documents and records for at least three years after you dispose of the property.
Income from selling property is considered taxable if sold for more than your basis in the property.
- The basis of inherited property is generally the property's fair market value on the date of the descendant's death.
- For gifted property, the basis is generally the same as the donor's (usually the fair market value when you received the gift).
Keep home sale and improvement receipts and documents for three years after you've sold the home. Most people don't have to pay capital gains tax on home sale profits.
- Single filers with $250,000 or less in gains don't need to pay capital gains tax.
- Joint filers with $500,000 or less in gains don't need to pay capital gains tax.
- Regardless of the amount, filers must have lived in the residence for two of five years prior to the sale to avoid capital gains tax.
But if you sell the house before then or if your gains are larger, you will need to have your home purchase records. Save receipts for home improvements, too. They can increase your adjusted basis (cost of acquiring the home, plus cost of improvements, less casualty losses), which can help reduce your tax liability. Similar rules apply to any rental property you own.
Save records for at least three years after selling the property.
State tax records
Don't forget to check your state's tax record retention recommendations, too. The tax agency in your state might have more time to audit your state tax return than the IRS has to audit your federal return.
For instance, the California Franchise Tax Board has up to four years to audit state income tax returns, so California residents should save related tax records for at least that long.
What to do if your W-2 or 1099 is lost, incorrect, or accidentally thrown away
You may have realized you accidentally threw your W-2 or 1099, discovered you never received one, or that the information listed is incorrect.
So what do you do?
For starters, obtain another copy of your W-2 or 1099 by contacting the issuer. If you have trouble obtaining one, here are some additional steps you can take:
- Contact the IRS for assistance at 800-829-1040. They will ask for your contact information, Social Security number, and dates of employment. The agency will also ask for your employer’s or payer’s contact information.
- If you don’t have time to call the IRS before the filing deadline, you can use Form 4852 or Form 1099-R to estimate your wages or earnings.
- File your taxes — even if your form is missing or incorrect.
If you receive the missing form after you file, and the amount listed differs from Form 4852 or Form 1099-R, you must file an amended tax return. You can do so by filing Form 1040-X, Amended U.S. Individual Income Tax Return.
Federal tax amendments can be filed by mail or electronically. It’s important to file the amendment as soon as possible to reflect the most accurate tax withholding.
For more information, check out the IRS’ announcement on missing or incorrect documents.
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