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Record Retention Guide
- RESOURCES
- TAX RESOURCES
- Record Retention Guide
Record Retention Guide
In this guide:
- Why keeping good records matters (tax and non-tax reasons)
- How long to keep tax records
- What general types of records the IRS requires taxpayers to keep
- Specific records needed for tax-saving opportunities and other tax matters
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About Record
Why Keeping Records Matters
“Maintaining accurate records will enable you to file accurate, complete tax returns with minimal hassle, ensuring that you receive your tax refund as quickly as possible. Scrambling to assemble needed records at the last minute is one of the most common reasons why taxpayers miss the filing deadline. Filing late can mean a much longer wait for your refund, and may even trigger IRS penalties. Tax benefits often have very specific recordkeeping requirements. Many taxpayers miss out on valuable credits and deductions, simply because they haven’t kept the necessary records. See What Kinds of Records Do I Need? and Records Required for Specific Tax Benefits below for more information. The IRS may also have questions about your tax return, or request more information about your income sources, deductions, etc. Having complete records will enable you to quickly respond to these requests and justify all the numbers on your return. If you cannot present the required records, the IRS may assess additional tax and/or penalties. In short, good recordkeeping helps you claim all the tax benefits you deserve, while also helping you avoid potential IRS hassles.”
You May Also Need Your Records for Non-Tax Purposes
“There are many other reasons to maintain detailed records beyond just tax matters. First off, accurate income and expense tracking can help you create and stick to a realistic household budget, and perhaps set aside a little more money each month. In addition, insurance companies and lenders may require you to maintain records for certain property. For these purposes, you may need to preserve your records for a longer time period than the IRS requires. Therefore, before discarding any tax records, you should always make sure that you won’t need the records for another reason.”
How Long Should I Keep Tax Records?
In general, the IRS requires that you keep a copy of your tax return, along with all related forms, worksheets and records, throughout the period when the IRS may assess additional tax, interest or penalties. You should also preserve these documents for as long as you have the opportunity to:
- 1. File an amended return to correct inaccurate information.
- 2. Claim a tax credit or refund that you did not originally claim, either by filing an amended return or through some other IRS-approved process.
Period of Limitations
In most cases, if you file your return and pay any tax due by the filing deadline, then the time period to amend your return and/or claim a credit or refund is the same as the period for the IRS to assess additional tax or fees. This timeframe is known as the period of limitations. The standard period of limitations for an individual tax return that was filed on time is three years from the original due date of the return. For late-filed returns, the period of limitations generally extends to three years from the date when the IRS accepted the return for processing. Therefore, it is often sufficient to retain your tax return and accompanying records for three years beyond either the original filing deadline or the date when the IRS received your return, whichever came later.
What If I File My Return and Pay My Tax at Different Times?
The period of limitations to amend your return or claim a credit/refund changes slightly if you pay your tax at a different time than you file your return. In this situation, you may generally take these actions up until three years after you filed the return, three years after the original due date for the return or two years after you paid the tax, whichever comes last.
Other Exceptions to the 3-Year Period of Limitations
A variety of circumstances may extend the period of limitations for the IRS to assess additional tax or fees. Note that these scenarios generally only affect the period of limitations for IRS actions, NOT for actions by the taxpayer. For example, if a taxpayer fails to report income amounting to more than 25% of the gross income shown on their return, the period of limitations for IRS actions increases to six years. If a taxpayer does not file a return at all, or files a fraudulent return, then the period of limitations for the IRS to assess tax, penalties, interest or other charges becomes unlimited.
Period of Limitations for IRS Actions in Various Situations
Situation
Standard Period of Limitations for IRS Actions
1. Tax return filed; none of the below circumstances apply.
3 years
2. Taxpayer does not report significant income on return
6 years
3. Taxpayer files a fraudulent return
Unlimited
4. Taxpayer does not file a return
Unlimited
5. Taxpayer claims a loss from worthless securities
7 years
Special Rules for Property Records
Selling property such as stocks, crypto, furniture, artwork, tools or equipment may result in a taxable capital gain, or a capital loss that you may use to offset capital gains. For any property that may have resale value, retain records relating to your acquisition, improvement, sale or other disposal of the property. Keep these records at least through the period of limitations for the tax year when you sell or dispose of the property. Proper record keeping is particularly important if you receive property through a trade or exchange. For example, you might trade away your dining room tables and chairs, in exchange for a sleeper sofa and entertainment cabinet. In this case, your investment (“basis”) in the sofa and cabinet would usually be the same as what you originally paid for the table and chairs. Therefore, you would need to preserve records of:
- Your original purchase of the dining room table and chairs
- The exchange of furniture
- Your later sale, donation or disposal of the sleeper sofa and entertainment cabinet
Again, keep these records through the period of limitations for the tax year when you sell or otherwise dispose of the sofa and cabinet.
What Kinds of Tax Records Do I Need to Keep?
The IRS requires taxpayers to keep a wide variety of basic records that may be relevant to their taxes. Many of these records fall into four main categories.
- 1. INCOME: Detailed records of payments you receive, including wages, interest, dividends, and self-employment earnings, help you properly report all your income. These records also help you sort out various types of income, which may be taxed differently. For example, income you receive as an employee gets treated differently for tax purposes than income you receive as an independent contractor. Certain other types of income, like interest on municipal bonds, may not be taxable at all.
- 2. EXPENSES: Costs like college tuition, contributions to your traditional IRA, mortgage interest or health insurance premiums may qualify you to claim a tax credit or deduction. For all of these tax-saving opportunities, you must preserve documents detailing each expense. If you have business income (including income from freelance, independent contract or gig economy work), then you may also be able to deduct a wide variety of business expenses – but only if you keep detailed records showing
- 3. MARITAL STATUS, FAMILY SIZE, ETC.: Your marital status determines your tax filing status options. A change of filing status can significantly affect your standard deduction amount and tax rate, along with the income limit for various tax credits and deductions. Make sure to keep a copy of a divorce decree or legal separation agreement with your tax records, especially if those documents grant you custody of dependent children. The number of qualifying children you have may affect your eligibility for the Child Tax Credit, Earned Income Tax Credit, and many other tax benefits, so preserve records of any births or adoptions as well. Also keep records of other life changes, such as relocation, disability or a death in the family.
- 4. CAPITAL GAINS/LOSSES: Selling or otherwise disposing of property may result in a taxable capital gain, or a capital loss that you can use to offset gains for tax purposes. Common property types involved in capital gains and losses include real estate, stocks, cryptocurrency, furniture, artwork, musical instruments, and electronics and other equipment. In order to properly calculate capital gains and losses, you must keep detailed records of your acquisition, improvement, sale, exchange and/or donation of all the property involved.
Commonly Needed Basic Tax Records
The following table summarizes some of the most important basic records that taxpayers should keep, and why these records are necessary.
Category
Common Records
Why You Need Them
Income
- W-2 Forms
- 1099 Forms (1099-NEC, 1099-INT, 1099-DIV, 1099-K, etc.)
- Bank & investment statements
- Form K-1 (for a trust, partnership, S-corporation, etc.)
- Proof of nontaxable income, such as tax-exempt municipal bond interest
- Records of gambling winnings and losses
Income is typically the single biggest determining factor for how much tax you owe. Inaccurately reporting income can result in overpayment of tax or IRS penalties. Note that W-2 forms may also be needed to prove your eligibility for Social Security and Medicare benefits.
Expenses and Deductions
- Mortgage payment records
- 1098-T tuition statements
- Medical bills & proof of payment
- Receipts for charitable donations
- Business mileage logs
- Sales receipts and paid invoices for other deductible expenses
The IRS requires detailed, written records to support most deductions. If you do not have the needed records, the IRS may disallow your deduction.
Marital status/Family size
- Marriage certificate
- Divorce or legal separation agreement or decree
- Birth certificates and/or adoption records
- Taxpayer ID numbers, such as Social Security numbers (SSNs) for all dependents
- Proof of payment for childcare or other dependent care costs
The IRS may require documents like these to justify your filing status and/or your claims of deductions or credits like the Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Credit.
Property/Capital gains and losses
- For your main home:
- Closing statement, purchase invoice, etc.
- Mortgage payment records
- Proof of major improvement expenses
- All records of sale, including Form 1099-S if you received one
- Purchase, trade/exchange, improvement, and sale or other disposition records for property:
- Real estate
- Investments (stocks, portfolios)
- Cryptocurrency
- Antiques, furniture
- Musical instruments
- Artwork
- Etc.
Any sale, trade/exchange or other disposal of property may involve a capital gain or loss. Capital gains may be subject to capital gains tax, while some capital losses may be used to offset capital gains or other income, reducing your tax.For your main home, proper record keeping may qualify you to exclude most or all of the gain from selling your home from your income, greatly reducing tax.The IRS has stepped up its enforcement of tax rules for cryptocurrency, so make sure your crypto records are detailed and up to date.
Life events
- Documentation of relocation / change of residence
- Documentation of military service status or discharge
- Documentation of disability
- Death certificates
- Records for other major life changes
Any of these events could affect your federal, state or local taxes, or qualify you for specific tax benefits.
Acceptable Forms of Proof for Expenses
For many expenses that qualify you for a credit or deduction, your records must include proof of payment. In the past, proof of payment usually meant a paper sales receipt, stamped invoice and/or canceled check. In today’s era of digital payments and digital receipts, you may also use the following as evidence of your deductible expenses:
- Emailed receipts
- Text messages confirming receipt of payment
- Transaction records from online payment platforms
- Bank account and/or credit card statements. Make sure these statements show the exact date, time and amount of the payment. Note that the IRS could question these records if they do not show what specific items were purchased, so be sure to use memo lines when possible, and save related evidence like product packaging, barcodes and user manuals.
Separating Business and Personal Expenses
If you have business income, including income from independent contract, freelance or other gig economy work, then you may qualify to deduct business expenses from your earnings. However, you must make certain that your records show a clear separation between business and personal expenses. If you cannot clearly show that a particular expenditure was made for a business purpose, the IRS may disallow your deduction. Expenses that serve both business and personal purposes, like the purchase of a new computer, must be appropriately prorated. For example, if only half of your computer use is devoted to business tasks, then 50% of the cost of the computer may be deductible as a business expense. If possible, create written documentation showing the basis for your claimed percentage of business use. Similarly, if you use your vehicle for both business and personal purposes, you must deduct only the business portion of your vehicle expenses. If you use the standard mileage rate, apply that rate only to the miles you drive specifically for business reasons. If you track actual vehicle expenses, prorate each expense based on the percentage of miles driven for business reasons.
Depreciation of Capital Business Expenses
Generally, you cannot deduct the entire cost of long-term business assets like equipment, machinery, computer hardware or furniture all at once. Instead, you typically must deduct a portion of the cost of the asset each year, over a time period called the useful life of the asset. This process is called depreciation, and the expenses involved are called capital expenses. For capital expenses that you depreciate, make sure to keep detailed records through at least the period of limitations for the last tax return where you claimed a depreciation deduction. If you intend to sell off an asset, keep your records through the period of limitations for the tax year when the sale occurs, since that transaction may involve a capital gain.
Records Required for Specific Tax Benefits or Issues
To claim certain tax credits or deductions, or to handle various other tax matters, you may need very specific records to comply with IRS requirements. This section summarizes some of the most common specific records needed for various tax purposes.
Adoption Credit
Keep complete records of the adoption process, including all expenses. Depending on the status of the adoption at the end of the tax year, you may also need an adoption taxpayer identification number (ATIN) for the child.
Affordable Care Act Premium Tax Credit
If you purchase your health insurance through the Insurance Marketplace (also called the Insurance Exchanges), you may qualify to claim the Premium Tax Credit. You will need Form 1095-A from the exchange where you purchased your insurance.
Alimony
For divorces or legal separations occurring after 2018, alimony is generally not deductible for the payer or taxable for the payee. Therefore, for those divorces and separations, alimony records are not needed for tax purposes (but should be kept for other reasons). For alimony related to a divorce or legal separation from 2018 or earlier, you may need your alimony records to justify a tax deduction or properly report your income.
Business Use of Your Vehicle
Keep detailed mileage logs, showing the distance and purpose of each trip. If you also use your vehicle for personal purposes, you must track both business and personal miles. If you use the standard mileage rate to figure your deduction, apply that rate to your business miles only. If you report actual vehicle expenses, you need detailed proof of payment for each expense. Prorate actual vehicle expenses based on the percent of your mileage that you traveled for business.
Capital Gains and Losses
For all investments, along with any other property that may have lasting value, keep detailed records through the period of limitations for the tax year when you sell or dispose of the property. These records should clearly show how much you paid for the property, or the value of any goods or services you exchanged for it. In the case of inherited property, record both the value of the property when it came into your possession and the previous owner’s basis in the property (most often, the amount they paid for it). Also maintain records of any costs you pay to substantially improve the property, as well as any depreciation deductions you claim for it.
Charitable Contribution Deductions
Obtain and keep a written receipt from the qualifying charity to which you made the donation. For non-cash donations, you may also need proof of the value of the donated property, such as a recent appraisal.
Child and Dependent Care Credit
Obtain and keep a written receipt from the qualifying charity to which you made the donation. For non-cash donations, you may also need proof of the value of the donated property, such as a recent appraisal.
Child Tax Credit
If you wish to claim the Child Tax Credit (CTC), each of your qualifying children must have a Social Security number (SSN). You also need proof of each child’s age, proof that each child lived with you for the required amount of time (usually more than half the year), and in cases of shared custody, proof of an agreement allowing you to claim the child for tax purposes.
Coverdell and Section 529 Education Savings Plans
Preserve records of all your (and others’) contributions to the plan for as long the account exists, along with written records clearly identifying the account beneficiary. Once the beneficiary begins using account funds for qualifying education expenses, make sure you or they keep complete records of the purpose and amount of each withdrawal. Keep these records at least through the period of limitations for the last tax year when the account had funds in it. If the beneficiary rolls over funds into a Roth IRA, keep complete records of that transaction as well.
Credit for the Elderly or Disabled
To claim this credit if you are under age 65, you must have proof from a physician or the Department of Veterans Affairs (VA) that you retired due to permanent and total disability.
Cryptocurrency, NFTs and Other Digital Assets
Because the IRS treats digital assets as property, not currency, you must keep the same records as you would for any other property that might be sold at a gain or loss. In particular, keep records of all purchases, sales and exchanges of crypto and other digital assets. Remember that you must report any involvement with digital asset transactions on your tax return each year, even if you owe no tax on those transactions. If you inherit crypto, you will need written documentation of the previous owner’s basis (usually, the investment they made to acquire the crypto). If you cannot produce those records, the IRS may tax every dollar you receive in exchange for the crypto as a capital gain.
Disaster, Casualty and Theft Losses
The IRS allows taxpayers to claim itemized deductions for certain losses of property that occur in areas affected by federally declared disasters. Your records must include proof of ownership of the property involved, as well as clear evidence of the property’s value. Regular, written appraisals of high-value property like artwork and antiques can help you justify your loss claim.
Earned Income Tax Credit (EITC or EIC)
Preserve all records of your earned income, such as W-2 and 1099-NEC forms. Keep records of your unearned income like interest and dividends as well, since unearned income may affect your eligibility for the EITC. You must also have Social Security numbers (SSNs) for yourself, your spouse and your qualifying children.
Educator Expense Deduction
Preserve receipts or other proof of payment for all the classroom supplies you purchased at your own expense. You may also need proof that you worked a sufficient number of hours as a teacher, classroom aide, principal or other eligible educator at a qualifying school.
Energy Efficiency and Clean Energy Credits for Homes and Vehicles
The IRS offers a variety of tax credits for home energy efficiency improvements, renewable energy conversions (such as installation of solar panels), and the purchase of plug-in and other alternative fuel vehicles. Keep detailed records for all qualifying expenses, such as receipts, paid invoices, energy efficiency ratings and vehicle identification numbers (VINs).
Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs)
Keep detailed records of all payments for qualifying medical expenses. These records should clearly show the medical clinic, facility or practitioner you made the payment to, and the nature of the expense (eye exam, dental crown, etc.). Keep these records at least through the period of limitations for the tax year when you withdraw funds from your HSA or MSA to pay the expense.
Higher Education Expense Credits and Deductions
To claim the American Opportunity Tax Credit (AOTC), Lifetime Learning Credit (LLC) or the above-the-line deduction for higher education costs, you will need proof of tuition and fees. Generally, this requirement includes obtaining Form 1098-T (Tuition Statement) from the qualifying institution of higher learning.
Home Office Deduction
If you have business income and primarily work from home, or use a separate building on your property like a detached garage solely for business purposes, then you may qualify to claim the Home Office Deduction. Your records should include proof of the size of the area that you use for business purposes, and detailed records of deductible expenses like rent and utilities.
Individual Retirement Arrangements (IRAs)
Keep complete records of all your contributions to IRAs. For all IRAs, these records can prove that you did not exceed the annual contribution limit. For traditional IRAs, contribution records are also required to justify any tax deduction you claim for IRA contributions. Also keep records of all distributions you take from your IRAs, including both taxable and non-taxable distributions.
Main Home Sale Exclusion
Often, selling real estate like a house or condominium involves a substantial capital gain. However, you may qualify to exclude a large portion or even all of the gain from selling your primary home from your income. To justify claiming the Home Sale Exclusion, you need complete records of your purchase, improvements and sale of your home. These records should include Form 1099-S if you received one in connection with the sale.
Medical and Dental Expense Itemized Deductions
Keep detailed records of all payments, including the clinic, facility or practitioner you made the payment to, and the nature of the treatment received. Also keep a mileage diary, since certain miles driven for medical reasons may be deductible at a standard mileage rate.
Mortgage Interest Itemized Deduction
Preserve records of each mortgage payment you make, including the amount of interest that the payment included. If you pay $600 or more in mortgage interest during a year, you should receive Form 1098, Mortgage Interest Statement, from the lender.
Saver's Credit
Middle- and lower-income taxpayers may be able to claim this credit for contributions they make to an IRA or other qualified retirement account. To apply for the credit, you will need complete records of all your account contributions, as well as proof of your income.
Self-Employment / Gig Economy Income
Recordkeeping is particularly challenging for people who work for themselves, since their earned income often comes from a wide variety of sources. Keep detailed records of all payments you receive for products and services, including payments in property or crypto. Remember that in general, all self-employment earnings are taxable, even if you do not receive 1099 forms for certain payments.
State and Local Taxes
If you itemize deductions on your federal tax return, you may be able to deduct some or all of the taxes you pay to state and local governments. Keep copies of all property tax statements, receipts showing sales tax paid and/or state income tax returns.
Student Loan Interest Deduction
Many taxpayers qualify to claim this deduction, even if they do not itemize deductions. Keep complete records of all your student loan payments, showing the amount of interest included in each payment.
