After you send off your tax return, how long do you have to let that document and the shoebox full of receipts hang around your office? Generally, you should hold onto your tax returns and all supporting documents for at least three years after the due date of the return.
Some examples may help. If you sent in your 2018 tax return in January 2019, prior to that year’s deadline of April 15, 2019, you can discard all related documentation after April 15, 2022 (three years later). If you sent in your tax return late that year because you took advantage of an extension, calculate the date at which you can toss out the documentation based on when you sent in the tax return, not on the deadline. So, if you sent it in on September 15, 2019, you should hold onto the return and supporting information at least until September 15, 2022.
In 2020 and 2021, the tax deadlines were extended (to July 15 and May 17, respectively). If you are marking your calendars on when to dispose of records related to those returns, we recommend waiting until after July 15, 2023 or May 17, 2024.
We do recommend holding onto some records past the three-year mark, though, including:
- Original documentation. Your W-2 and actual tax return documents should be kept indefinitely. It’s fine to shred the backup documentation (like receipts and transaction records), but it’s possible you will need your W-2 and tax returns for income verification, loan applications, Social Security benefits, proof of property sales and purchases, and other financial transactions.
- State income taxes outside Florida. If you have paid income tax in a state that requires you keep these records for longer than three years, you will need to hold off on throwing your records out. In many states, the statute of limitations is one year longer than in the federal statute. The IRS provides state tax authorities with federal audit results, and the extra year gives the states time to assess taxes based on any federal tax adjustments.
- Stock and mutual funds records. If you own stock in a corporation, or have mutual funds that reinvest the dividends, keep related records for at least four years after selling the stock. The purchase data is needed to prove the amount of profit (or loss) that you had on the sale(s).
- Property purchase and improvement records. Keep records of business, rental, and home property acquisitions, as well as all related capital improvements, for at least four years after the property is sold.
- Sales that create loss carryovers. If you sell stock, mutual funds or investment property at a loss, and your total capital loss for the sale year isn’t fully absorbed by capital gains plus $3,000, the excess loss may be carried forward to be used on the next year’s return and even beyond, depending on the amount of the loss. The IRS could require proof of the original loss, even many years after the original loss year. So, not only should you keep the return copies to account for the use of the carryforward loss, you should also retain the records to substantiate the original loss until the carryover amount is fully used up, and for at least four years after the last year for which a loss is deducted.
If reading the list above of special circumstances caused a pang of regret because you now know you should have kept something for longer than you did, note that you can get a new copy of a prior year’s tax return from the IRS. This transcript summarizes the return information and includes adjusted gross income (AGI). This service is free and is available for the most current tax year once the IRS has processed the return.
If you have questions about which records you should retain and which ones you can dispose of, reach out to us at info@sbfcpa.com.