Record Retention Guide

How Long To Keep Records

You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out.

The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. Table 3 contains the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.

Period of Limitations Table
IF you… THEN the period is…
1. Owe additional tax and situations (2), (3), and (4), below, do not apply to you 3 years
2. Do not report income that you should report and it is more than 25% of the gross income shown on the return 6 years
3. File a fraudulent return Not limited
4. Do not file a return Not limited
5. File a claim for credit or refund after you filed your return Later of: 3 years or 2 years after tax
was paid
6. File a claim for a loss from worthless securities or a bad debt deduction 7 years

Property: Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. You must keep these records to figure your basis for computing gain or loss when you sell or otherwise dispose of the property.

Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.

Keeping records for nontax purposes: When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. For example, your insurance company or creditors may require you to keep them longer than the IRS does.

Why Keep Records?

There are many reasons to keep records.  Good records will help you:

Identify sources of income. You may receive money or property from many sources. Your records can identify the sources of your income. You need this information to separate business from non-business receipts and taxable from nontaxable income.

Keep track of deductible expenses. You may forget expenses unless you record them when they occur.  You can use your records to identify expenses for which you can claim a deduction on your tax return.

Keep track of the basis of property.

You need to keep records that show the basis of your property. This includes the original cost or other basis of the property and any improvements you made.

Support items reported on tax returns. You must keep your records in case the IRS requests additional information for items reported on your tax return. If the IRS questions an item on your tax return, your records will help you explain the item easily.  If you aren’t able to explain the item, you may need to pay additional tax and penalties.

Kinds of Records to Keep

Basic Records

Basic records are documents that everybody should keep. These are the records that prove your income and expenses. If you own a home or investments, your basic records should contain documents related to those items.

The Table below lists documents you should keep as basic records.

For items concerning your…

KEEP as basic records

Income
  • Form(s) W-2
  • Form(s) 1099
  • Bank Statements
  • Brokerage Statements
  • Form(s) K-1
Expenses
  • Sales Slips
  • Invoices
  • Receipts
  • Canceled Checks or other Proof of Payment
  • Written Communication from Qualified Charities
Home
  • Closing Statements
  • Purchase and Sales Invoices
  • Proof of Payment
  • Insurance Records
  • Receipts for Improvement Costs
Investments
  • Brokerage Statements
  • Mutual Fund Statements
  • Form(s) 1099
  • Form(s) 2439
Income

Your basic records prove the amounts you report as income on your tax return. Your income may include wages, dividends, interest, and partnership or S corporation distributions. Your records also can prove that certain amounts aren’t taxable, such as tax-exempt interest.

NOTE: If you receive a Form W-2, keep Copy C until you begin receiving social security benefits. This will help protect your benefits in case there is a question about your work record or earnings in a particular year.

Expenses

Your basic records prove the expenses for which you claim a deduction (or credit) on your tax return. Your deductions may include alimony, charitable contributions, mortgage interest, and real estate taxes. You also may have childcare expenses for which you can claim a credit.

Home

Your basic records should enable you to determine the basis or adjusted basis of your home. You need this information to determine if you have a gain or loss when you sell your home or to figure depreciation if you use part of your home for business purposes or for rent.

Your records should show the purchase price, settlement or closing costs, and the cost of any improvements. They also may show any casualty losses deducted and insurance reimbursements for casualty losses.

When you sell your home, your records should show the sales price and any selling expenses, such as commissions.

Investments

Your basic records should enable you to determine your basis in an investment and whether you have a gain or loss when you sell it. Investments include stocks, bonds, and mutual funds.

Your records should show the purchase price, sales price, and commissions. They may also show any reinvested dividends, stock splits and dividends, load charges, and original issue discount (OID).

Proof of Payment

One of your basic records is proof of payment. You should keep these records to support certain amounts shown on your tax return. Proof of payment alone isn’t proof that the item claimed on your return is allowable. You also should keep other documents that will help prove that the item is allowable.

Generally, you prove payment with a cash receipt, financial account statement, credit card statement, canceled check, or substitute check. If you make payments in cash, you should get a dated and signed receipt showing the amount and the reason for the payment.

If you make payments using your bank account (via electronic funds transfer), you may be able to prove payment with an account statement.

Proof of Payment Table
If the Payment is by…

Then the Statement must show the…

Cash
  • Amount
  • Payee’s Name
  • Transaction Date
Check
  • Check Number
  • Amount
  • Payee’s Name
  • Date the Check Amount was posted to the account by the financial institution
Debit or Credit Card
  • Amount Charged
  • Payee’s Name
  • Transaction Date
Electronic Funds Transfer
  • Amount Transferred
  • Payee’s Name
  • Date the Transfer was posted to the account by the financial institution
Payroll Deduction
  • Amount
  • Payee Code
  • Transaction Date

Account statements. You may be able to prove payment with a legible financial account statement prepared by your bank or other financial institution.  These statements are accepted as proof of payment if they show the items reflected in the Table above.

Pay statements. You may have deductible expenses withheld from your paycheck, such as union dues or medical insurance premiums. You should keep your year-end or final pay statements as proof of payment of these expenses.