Tax season can be a busy time for many people as they gather their documents and prepare their tax returns. Once the filing deadline has passed, taxpayers may wonder how long to keep tax returns for their records. In this article, we will guide you on the recommended retention period for tax returns.
General Rule of Thumb
The general rule of thumb is to keep tax returns for at least three years after the due date of the return. This is because the IRS has up to three years to initiate an audit of your tax return, so it’s important to keep all relevant documentation during that time.
Exceptions to the Rule
There are exceptions to the three-year rule that taxpayers should be aware of including:
· Fraudulent returns:
If you file a fraudulent return, you should keep your tax returns indefinitely. The IRS can go back as far as they need to audit a fraudulent return.
· Failure to file a return:
If you fail to file a return, you should keep your tax returns for at least six years. The IRS has up to six years to audit a return that was not filed.
· Worthless securities or bad debt:
If you claim a loss from a worthless security or bad debt, you should keep your tax returns for seven years. The IRS has up to seven years to assess additional tax if you filed a claim for a loss from worthless securities or bad debts.
Self-Employed or Small Business Owners
If you’re self-employed or own a small business, the rules regarding how long to keep tax returns can vary. Generally, you should keep tax returns for at least three years, but it’s recommended to keep them for six years to be on the safe side. This is because the IRS has up to six years to audit a tax return that reports income associated with a business that has not been properly reported.
In conclusion, taxpayers should keep tax returns for at least three years after the due date of the return. However, there are exceptions to this rule, and self-employed individuals and small business owners should keep tax returns for at least six years. Supporting documentation should also be retained to prove the accuracy of a tax return in the event of an audit. After the retention period has passed, taxpayers should dispose of tax returns and securely supporting documents to prevent identity theft or fraud.