IRS record keeping guide

How long should tax records be kept?

A tax payer should keep most tax records for at least 3 years and preferably for 6 years. The IRS has 3 years to conduct IRS audit on most tax returns and 6 years if the IRS can demonstrate that

• the tax payer omitted at least 25% from his or her gross income as stated on the tax return.

There is no limitation period if the IRS  can prove

• fraud or
• if the tax payer fails to file a tax return.

Keep some tax records forever

Some tax records should be kept forever. These tax records which should be kept long term primarily relate to investments and are needed to compute the investment cost (the basis) when the investment is sold.

Examples of these long term tax records are stock, bond, mutual fund, and retirement account statement showing purchases, reinvested dividends and or interest and sale proceeds. Without these tax records, tax payers inevitably pay more taxes than is necessary. A tax payer can usually avoid this increased tax payments by keeping the necessary tax records.

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