The 2021 U.S. federal tax filing deadline is coming up, and some filers are pulling together everything they need for an efficient, thorough, deduction-maximizing and on-time filing. But after that Monday, April 18 filing deadline for 2021 taxes is met, it doesn’t mean that the paperwork is over. When taxes are done, document retention is just beginning. It’s important that the documents used to file personal taxes are not destroyed or discarded; they need to be kept for a while—and a “while” to the U.S. government income tax authority means several years.
The U.S. Internal Revenue Service (IRS) advises that tax filers should hold on to any records that will validate any itemized tax deductions or tax credits that are claimed on a 2021 tax return. If the documents—either in paper or digital form—will be used to establish any tax claims for last year, then keep them for several years after filing taxes this year. Details on how long to hold on to filing documents vary, as the IRS is particular about the time limitations for managing different types of records.
Generally, how long should you hold on to tax documents?
According to the IRS, it “…generally recommends keeping copies of tax returns and supporting documents at least three years. Employment tax records should be kept at least four years after the date that the tax becomes due or paid, whichever is later. Tax records should be kept at least seven years if a return claims a loss from worthless securities or a bad debt deduction. Copies of previously-filed tax returns are helpful in preparing current-year tax returns and making computations if a return needs to be amended.”
Specifically, how long should you hold on to different types of tax documents?
The more detailed IRS’ time periods of limitations that apply to income tax returns and different filing situations are:
- “Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
- Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
- Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
- Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
- Keep records indefinitely if you do not file a return.
- Keep records indefinitely if you file a fraudulent return.
- Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.”
Why types of documents should be retained?
Following are just some (but not necessarily all) key types of documents you may want to retain and hold securely after filing taxes:
- Tax returns for previous years
- Forms W-2, Wage and Tax Statement
- Form 1099-MISC, Miscellaneous Income
- Form 1099-INT, Interest Income
- Form 1099-NEC, Nonemployee Compensation
- Form 1099-G, Certain Government Payments, which include unemployment income or a state tax refund
- Form 1095-A, Health Insurance Marketplace Statements
- Documents related to home ownership, such as for mortgage payments and mortgage interest
- Financial statements from savings, checking and investment accounts, including those that record purchases and sales of investments
- Financial statements from retirement accounts
- Financial statements from estate, trust, and foundation accounts
- Canceled, scanned, returned or substitute checks
- Credit card and other receipts, including for meals that may be deductible
- Bills, including those for major medical care, college tuition, child care and energy-saving home improvements
- Invoices
- Mileage logs, hotel receipts, and plane tickets
- Other forms of proofs of payment, either to someone or from someone, such as for a real estate or other property transaction. These could include records of cashiers' checks, wire transfers, or other electronic methods for transferring money, such as Zelle®.
Better safe than sorry
When in doubt about holding on to some records, well, hold on to them. However, keeping tax documents doesn’t mean you always must maintain paper copies of them. Paper documents can be scanned (by printers, copiers, cellphones and cameras) and stored electronically to cut down on physical storage space. The IRS does allow—but has requirements for—digital documents. Also be careful about protecting your digital documents.
Other thoughts on taxes
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