How Long Do I Have To Keep Tax Records?
Chances are you just Googled “How long to keep tax records?“, “how long do I have to keep my tax returns?” or some variation of this question, and you’re not alone.
Every year this question pops up because millions of American’s have no idea how long they need to keep tax records & returns. Should they keep the return only?
What about keeping all receipts?
Do I shred my returns so no one can get my personal information?
Can I throw tax returns away?
Should I keep the tax records in storage?
It’s crazy how little we really know about the IRS rules for tax returns and related tax records.
What The IRS Say About Keeping Tax Records
Of course, you know, the IRS is the official source on tax returns & records so the general rule of thumb is to err on the side of safety with them, right? You don’t want to get in trouble with the IRS because you threw away your tax return from last year or all of your receipts!
That wouldn’t be good.
So, let’s see what the IRS says about keeping tax returns & records.
The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.
That wasn’t really helpful because we need to know the “period of limitations”
- You must keep records for 3 years if you haven’t filed a fraudulent tax return, you’ve filed your tax return on time & you did not misstate your income, or elect not to report income, in the amount of 25% of the gross income on that tax return.
- You must 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.
- You must keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
- You must keep records for 6 years if you do not report income that should have been reported, and it is more than 25% of the gross income shown on the return in question.
- You must keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
- Everything else, keep records indefinitely. This means that if you failed to file a return or you filed a fraudulent tax return.
Alright, let’s break this down so it’s easier to understand. We’ll even use hypothetical scenarios to make this simple.
Keeping Tax Records For 3 Years
Julie is a single mom that works at Walmart and she’s a W2 employee that works full-time. She doesn’t have any investments and takes pretty typical deductions. However, she does get a child tax credit for each of her 2 kids. Julie has a fairly easy tax return to fill out since she only has one taxable income source (she doesn’t have to declare child support) and she gets a handy little W4 from Walmart every year that states how much she made and the total Federal Tax Withholding. Julie always gets a tax refund.
Julie has it pretty easy in terms of tax record keeping. She’s only required to keep her records for 3 years.
Keeping Tax Records For 7 Years
Brent filed his individual tax return in April 2018 for the 2017 year. Brent runs a small business with 3 employees and has many deductions he plans to take so naturally, he keeps his receipts on hand (editor: Brent should really be using Everlance to track his and his employees’ expenses & receipts) in a nice little file folder in his office cabinet.
On his 2017 tax return, he also had to claim a loss for a bad investment in securities. See, Brent was trying to short Tesla on quarterly earnings for some quick profit and the first rule of investing is never bet against Elon Musk! We’re kidding of course, but poor Brent, he lost $10,000.
Now, where does Brent fall in terms of keeping tax records?
- Does he keep them for 3 years because he’s filing on time and accurately?
- Does he keep them for 4 years because he has a small business and pays employment tax?
- Does he keep them for 7 years because he’s declaring a loss on securities?
The answer is always the latest date that applies, so in this case, it’s 7 years.
Brent must keep his tax records, all of them for the 2017 tax record for 7 years.
Keeping Tax Records For 6 Years
James is super busy and very poor at keeping records. He has multiple income sources and in 2017 he forgot to declare $12,023.23 in income from one of his rental properties and later had to file an amendment when he realized his mistake.
Unfortunately for James after all of his deductions, his adjusted gross income (taxable income) was $38,281.52, and $12,023.23 is 31% of his total taxable income for that year! Whoops!
Since 31% is higher than 25%, James is now going to have to keep all of his tax records for 2017 for 6 years.
Keeping Tax Records For 4 Years
Samantha owns a business with 8 full-time employees including herself. She has to pay employment tax for each of her employees.
Since her business is an LLC, which is a pass-through entity, the profit & loss from the business is passed-through to her tax return. This means that her personal tax return will contain information on the business as well.
While her taxes are complicated and there are many deductions, Samantha files on time. She pays her taxes due on time and she isn’t trying to cheat.
Nevertheless, Samantha must keep her employment tax records for 4 years.
Keeping Tax Records Indefinitely
Steve isn’t a real bright guy. He thought he could get away with not filing his tax return ever. It turns out Steve was incredibly wrong!
The IRS eventually found him and he was forced to pay back taxes in the amount of $287,283.09 after penalties and interest. And guess what else? He has to to keep all of his tax records forever! That’s right. Can’t throw those away, Steve!
The same applies for defrauding the government, though, you’ll likely be in prison so there’s that.
Using Everlance To Track and Keep Expenses & Receipts Forever
What if we told you there was a solution for tracking and keeping some of your most important records…forever? Yeah, yeah. We know you know where we’re going with this – Everlance!
If you give us a quick 30 seconds of your time we’d love to tell you about all of the awesome things that Everlance can do for you, and no it’s just tax based. Afterall, Everlance is one of the best mileage trackers in the world so it’s great for reimbursements through an employer or a client as well.
The Mileage Tracker: Everlance uses GPS to automatically track your mileage in the background and is an absolute snap to use. You simply download the app (iOS or Android), sign up for free and the app starts tracking!
You can view your trips at any time and see your complete route and the actual dollar amount in savings. The only thing you’ll ever have to do is classify your trip as either business or personal, and you can do this by simply swiping left or right.
It’s really that easy.
Want to add a previous trip manually? We have that option as well, something our competitors don’t offer.
The Expense Tracker: Tracking all of your expenses and physical receipts can be an absolute hassle. Everlance makes this easy by allowing you to take pictures of your receipts and store them securely in the cloud forever. Any expenses you incur, such as tolls, parking fees, .etc you can manually add and classify.
For those of you that upgrade to Everlance Premium ($5/mo), we have a new feature that will allow you to link your bank account or credit cards and we’ll automatically grab your expenses!
The Revenue Tracker: This option is amazing for freelancers that need to track mileage, expenses & revenue. Any self-employed person that travels to make money wants a complete picture come tax-time. The revenue tracker gives Everlance users the ability to manually add their revenue for each trip.
Everlance Dashboard & Reports: We don’t stop at tracking mileage & expenses, we also want you to be able to use that data for taxes! Just sign in to the Everlance Dashboard and you can view a quick snapshot of your overall savings, mileage, expenses, and revenue.
When you’re ready to hand it off at tax time simply export the data to PDF or CSV (Excel file) and you can import it directly into your favorite tax software or give it straight to your tax preparer.
Everlance automates the entire employee reimbursement process saving your employees and finance department hundreds of hours. Employees should be doing the job they love not mileage and expense reports!
Why You Should Download Everlance Today
If you want to maximize your deductions and make filing taxes a breeze – you need Everlance. Tracking your mileage, expenses & revenue has never been easier or more affordable. The average Everlance user finds over $6,500/yr in deductions, and at $5/mo that’s an absolute bargain.