After Filing Your Taxes, What Records Can You Toss?

Taxpayers who filed their 2021 tax returns may be eager to clear tax-related paper clutter. Paring down is a promising idea eventually, but essential records may be needed in the event of an IRS audit. Other documents may help with collecting a future refund or assist taxpayers with filing next year. This article provides an outline of the documents that should be kept — for how long — and the papers to throw away.

If you have filed your 2021 tax return, you may want to do shred tax-related paper clutter. Paring down clutter is good but be careful to retain essential records which may be needed:

• In the event of an IRS audit,
• Collect a future refund, or
• Assist with filing your return next year.

Before you start tossing or shredding documents, read the rules to learn what must be kept — for how long — and what can be safely discarded.

The general rules

At a minimum, you should keep tax records for as long as the IRS can audit your tax return or assess additional taxes- three years after you file your return. For example, records used in preparing your 2018 return filed in 2019, could potentially be destroyed this year.

However, the statute of limitations extends to six years for taxpayers who understate their adjusted gross income by more than 25%. What constitutes an understatement may go beyond simply not reporting items of income. Without the records, you cannot refute an IRS claim. A general rule of thumb is to save tax records for six years from filing.

Longer retention:

You need to keep other tax-related records beyond the statute of limitations. For example:

• Keep the tax returns themselves indefinitely, to prove to the IRS you did file a legitimate return. (If you did not file a return or if you filed a fraudulent return, there is no statute of limitations.)
• Retain W-2 forms until you begin receiving Social Security benefits. That may seem long, but if questions arise regarding your work record or earnings for a particular year, you will need your W-2 forms to help provide the documentation needed. Records regarding employee benefits should also be retained.
• Keep records related to real estate or investments for as long as you own the assets, plus at least three years after you sell and then report the gain or loss on your tax return (or six years if you want extra protection).
• Hang onto records associated with retirement accounts until you have depleted the accounts and reported the last withdrawal on your tax return, plus three (or six) years.
• Retain records that support figures affecting multiple years, such as carryovers of charitable deductions or casualty losses. These need to be saved until they no longer have effect, plus seven years.

If you are still not sure about a specific document, feel free to ask us.

Other reasons to retain records

Keep in mind that these are the federal tax record retention guidelines. Your state and local tax record requirements may differ. In addition, lenders, co-op boards and other private parties may require you to produce copies of your tax returns as a condition of lending money, approving a purchase, or otherwise doing business with you. Lending institutions and retirement administrators’ loss records through consolidations, mergers, and computer errors. Proof of debt repayment and beneficiary documents have been lost in the past. Those records should also be retained. Contact us with questions or concerns about recordkeeping.

HoganTaylor Tax Services

If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax services, please contact Tony Otto, Lead Tax Partner. You may also contact Denise Felber, Tax Partner.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.