Kind of ironic that tax time rolls around right when the annual crop of spring-cleaning articles start blooming like so many daffodils in grocery store magazine racks. Purge the clutter, get rid of the junk piling up in your file folders — oh, but hang onto all this dog-eared tax paperwork for how long?
First, the bad news: You should keep previous years’ returns pretty much indefinitely. It’s good to keep around past tax returns because you can use them as a reference or template for future tax-years or amendment filings.
The good news is they take up a lot less room if they’re stored in digital format on a hard drive, which most of us already have done, since the majority of Americans do their taxes electronically now. (If you got stuck filing an amended return, sorry — you’ll have to scan in the paper return if you don’t want it existing as clutter.)
The same rule of thumb to keep tax returns into perpetuity also holds true for title, sale, deed, inheritance or other records that could have tax implications in the future, experts say.
H&R Block says the IRS will accept digital versions so long as the scans are legible.
The rest of the material that supplements what’s actually on the return — receipts for charitable donations, 1099s from miscellaneous earned income and so on — should be kept for three years, which is the IRS’s window of time for tax lookbacks. The caveat here is that some states have longer lookback windows. For instance, California and Arizona have four-year periods, while Montana’s is five years, according to TurboTax. Check before you chuck to make sure you’re in the clear — and keep federal as well as state documents, since your federal tax situation impacts what you pay the state.
The other caveat to that three-year limit is if that if the IRS suspects fraud, it can expand that lookback to seven years. (The agency helpfully suggests that you keep your paperwork if you’ve filed a fraudulent return, underreported your income or just didn’t bother to file a return.) Even if you’re not a tax scofflaw, hang onto your documents for seven years if you file a bad debt deduction or a claim for worthless securities.
And before you get to shredding, the IRS also suggests making sure there aren’t any other reasons you need to keep that paperwork. Creditors or insurance companies, for instance, might require documents even after the IRS’s time period has passed.