How long should i keep personal tax returns

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• You should hold on to most of your tax returns for at least 3 years. 
• In addition to your return, keep supporting documents like W2s, 1099s, and deduction-related receipts.
• There are many exceptions that may require you to keep your tax records for longer.
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Whenever you file your taxes, a trail of documents are involved. After you've settled up with the Internal Revenue Service, you might be tempted to just toss all that paperwork. But the IRS recommends that you preserve your tax returns and related documents for at least three years. In some cases, you may need to keep them even longer.

Here are the guidelines to follow when deciding how long to keep yours on hand.

Hold on to your records for a bare minimum of 3 years 

"The general rule of thumb is to keep your tax returns for at least three years from the date you filed it, the due date, or the date you paid the tax, whichever is later," explains Tom Taulli, an enrolled agent and owner of Pathway Tax.

Within three years, you can file amendments to your tax return in order to claim a credit or refund. Additionally, the IRS statute of limitations allows for questioning or auditing a return during that time frame. If the IRS has questions about your tax returns or wants to perform an audit, you'll probably be asked to produce your tax records. 

In addition to your tax returns, you should keep any supporting documentation. The things you should keep include your W2 form, 1099 forms, records of unemployment payments, credit card receipts, invoices, mileage records, statements detailing any securities transactions you made, and documents detailing contributions made to retirement-savings accounts. 

You may need to keep your tax records for longer in certain situations. Generally, a more complicated tax situation will lead to a longer required holding period. 

Keep your tax records for 6 years if you omitted some income

The IRS requires you to keep your tax records for six years if you underreport income that accounts for more than 25% of the gross income. 

This extended time requirement won't apply to you if you have a cut-and-dried tax return with straightforward W2 income. But if you have a complicated return that intentionally underreports income, then the IRS has six years to check the records and assess more tax.

Maintain tax returns and records for 7 years for capital losses 

If you claim a capital loss from securities or bad debt on your return, keep the records for seven years. The extended record-holding period gives the IRS ample time to check into your claim to confirm that the appropriate amount of tax was paid. 

In addition to your tax return, make sure to keep detailed records on the capital loss itself. 

Keep records for 10 years or longer under certain circumstances

Tax filers who have paid taxes to a foreign government can claim a credit or itemized deduction on those taxes up to 10 years later. The credits and itemized deductions are only available if the same income is subject to US tax. But hanging on to those tax records for the 10 years will help you justify the claim if the need arises. 

If you are a property owner, there are additional time requirements to consider. For one, you'll definitely want to hold the tax records related to a particular property for the duration of your possession. These records will help you determine any depreciation, amortization, depletion deductions, and capital gains related to the property. After you sell the property, you'll need to keep the records until the period of limitations expires. 

But there's a catch when it comes to nontaxable exchanges. If you obtain property in a nontaxable exchange, you'll need to keep the tax records of both the old property and the new property until the period of limitations expires when you sell the new property.

Beyond the 10 year mark, the IRS only recommends holding onto your tax records if you've filed a fraudulent return or didn't file a return at all. That's right. The IRS actually recommends holding onto these records if you've willfully broken the tax code. But of course, it is absolutely not recommended that you skip tax filing or intentionally commit fraud on your tax return. 

The financial takeaway

The IRS clearly outlines the guidelines around how long you should keep your tax records. But some experts recommend holding onto the returns for even longer than the IRS says you should. 

"It's easy and convenient to scan and upload to the cloud, and there is very little downside to keeping old returns, but lots of potential nightmares lurking if you need an older return and can't access it," says Matthew Jenkins, CFA, CFP and founder of Noble Hill Planning.

Ultimately, you'll be safe following the rules of retention laid out by the IRS. But if you want to hold onto those records longer, it won't hurt to have them available if you need them.

Sarah Sharkey is a personal finance writer who enjoys helping people make better financial decisions. Sarah enjoys traveling, hiking and reading when she is not writing. You can connect with her on her blog Adventurous Adulting.

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