What to Do With Your Income Tax Records – Record Retention Guidelines

Are you ready for a major housecleaning but not sure how long you need to keep old income tax records? Before throwing away important income tax records, consider the following general guidelines.

The general rule under federal income tax regulations requires you to keep your records as long as the contents may be material to the administration of the tax law.

The retention periods apply to records needed to substantiate your federal income tax return and are generally based on the federal statute of limitations, which is normally three years. This means the IRS could audit your return up to three years from the due date of the tax return or the date of filing, whichever is later. However, if you substantially underreport income, fail to file a return or file a fraudulent return, the statute of limitations could be much longer.

In addition, the statute of limitations in some states exceeds the federal statute, or the states have laws or regulations that require taxpayers to maintain records beyond the state’s statute of limitations, often to verify carryovers, etc.  The state of California has a 4 year statute.

Tailor your years of retention to the longer of the federal or state requirements. In deciding your own record retention schedule, consider indefinitely keeping those records that cannot be recreated by any other office, institution or governmental unit. Also, keep in mind your own financial concerns that may affect the length of time you keep your records. Most importantly, consult with your attorney for approval of any record retention policy. Read more