How Long Do You Need to Keep Those Records?

Ernie Neve, CPA

August 20, 2020

Now that most everyone has filed their tax returns, one of the biggest questions we get in the office is “How long do I need to keep these?”

The reality is that since more and more records are stored “in the cloud” our reliance on paper is not as extreme as it once was.  The IRS, though, changes slowly, and so does our banking system, so while you might be able to have virtual copies of all your data, having paper copies for a certain length of time is still a great rule to follow.  

I’ve decided to share a few ideas on what to keep and how long to keep it, but let’s start with the “easy” stuff first – you can pretty much discard all your pay stubs and such after a year, especially once you’ve filed the taxes on them and the numbers all match up.  

Think about it – Your W-2 or 1099 is an aggregate of that data, so there’s really no need to hold on to them too long – they’ll just get in the way.  With Direct Deposit becoming so common now, too, fewer and fewer “pay stubs” are even printed.  

For the most part, all the documents you’d use to support your income tax returns need to be held for three years.  These are those W-2s, 1099s, charitable contribution data, and any and all deductions and retirement contributions you’ve made and then used to validate on your income tax returns.  Inevitably, these documents are returned to you when you file your taxes, so they’re already “in position” so to speak.  

Personally, I like to hold the consolidated file for a tax return for up to ten years, but … and there’s always a but…

The IRS has up to 6 years to audit you, so having easy access to ALL of the data used to file any given year is a smart move in case of an audit.  
Worthless securities or bad debt can be written off up to seven years after the fact.  This is especially true in cases of inter-family loans, which ALWAYS seem to take a while to be repaid.  
You have up to ten years to file for a credit or deduction in instances where you paid taxes to a foreign government.  This would be through an amended return, so, obviously, you have to have the return to work with it.  
Yes, I know the idea of keeping return after return handy for a decade seems to be archaic – and it is – but the reality is it’s still a good policy to have them handy.  Yes, you can easily download copies, but the supporting data you’d actually need?  

You’ve got to have that, so creating and keeping a box with the annual returns in them, along with all the hard copies sent by employers and financial institutions, is a simple system that will always allow you to have what you need when you need it. 

 

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