How Long Should I Keep My Tax Records?

Does the word “audit” cause you some mild panic?  If so, you’re not alone.  It’s a scary word in the world of taxes.  The good news is that less than 1% of tax payers ever go through the process.  If you find yourself being audited, you'll want to make sure you have detailed and thorough records of your previous tax returns (including supporting documentation).  With that in mind, it's important to know how many years of records you should keep.  Your tax professional is legally required to maintain 3 years of records.  That's because, in most cases, the IRS has 3 years from the time of filing to conduct an audit.

There are exceptions to the 3 year statute of limitations.  At Levesque & Associates, Inc. we store 7 years of records.  Why?  Should it be uncovered that a taxpayer omitted more than 25% of one year's gross income (whether intentionally or unintentionally), the IRS has the right to audit as far back as 6 years.  The same is true if it is discovered that a tax payer left out more than $5,000 earned in foreign countries.  Note that there is no statute of limitations for unfiled returns or fraudulently filed returns.

Not filing a tax return will not help you avoid an audit.  In fact, it can create a much bigger headache.  The statute of limitations is not related to the year in which the income was received.  It begins when the return in question is filed.  For example, if you get an extension and file your 2017 taxes on October 1, 2018, the IRS has until October 1, 2021, to audit the return (assuming there are no circumstances that allow the IRS to audit the return as far into the future as 2024).

While your tax professional should be storing at least 3 years of documentation, we recommend you store 7.  "It won't hurt you to store seven years of returns, but imagine the headache if you need the supporting documents and you don’t have them?" says Conrad Levesque, CPA, owner of Levesque & Associates, Inc.

Don't feel like you must store your paper records, either.  You can scan or download and securely store copies of your records digitally.  At Levesque & Associates, we offer clients access to a secure digital vault.  Clients may upload their tax return documents (W-2s, 1099s, donation receipts, etc) to the vault, making them available to the tax preparer.  When the return is completed, the preparer will upload the finished return to the vault where the client may print or download a copy.  The return can stay in the vault for future access.

If you don’t have access to SmartVault, you can still leverage technology to conveniently store your documentation for any future needs.  Documents can be scanned and stored in a cloud service such as OneDrive or Dropbox.  Even if you opt to skip the tech, make sure you are hanging on to everything related to your return for the appropriate amount of time. What documents should you keep?  Below is a list of many of the common things you should hang on to related to your taxes.  If you have a unique circumstance or a specific question, contact your CPA.

• Copies of your actual tax returns (original and amended)
• All W-2s
• 1099s – contract work, investments, interest received, dividends, government payments, etc
• 1098s – these include tuition paid, student loan interest, mortgage interest, etc.
• 1095s – health insurance coverage
• Records of contributions (and withdrawals) to IRAs and 401(k)s
• Copies of receipts for medical expenses
• Compliant mileage log - Learn more about mileage deduction rules and log requirements here
• Copies of donation receipts and a log of items/funds donated
• Copies of medical receipts if applicable
• Closing statements from the purchase or sale of a property (we recommend maintaining the closing documents for as long as you own the property plus 7 years)
• Copies of receipts for any improvements made to a property (does not include routine maintenance)
• Property tax bills and copies of receipts of payment
• If you own rental property, be sure to keep a log of rental payments received and any improvements/maintenance costs incurred each year
• If you have unreimbursed business expenses, make sure to keep all receipts (no longer deductible under new tax law)
• Records of other business receipts and income not documented on a W-2 or 1099

If you have been selected for an audit, visit the IRS website for answers to frequently asked questions and for important information on the steps you should take.  Remember, the IRS only initiates an audit via mail.  If you receive a phone call or email notifying you that you are being audited you should assume it is a scam.  Do not disclose any personal or payment information.