How long do I really need to keep tax returns?

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soccerdad12
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How long do I really need to keep tax returns?

Post by soccerdad12 » Fri May 19, 2017 7:17 am

I have to clean a closet this weekend with my past 20+ years of tax returns and was thinking I could be in for a lot of shredding. The IRS says to keep returns 3 years unless you claim a loss from bad securities or bad debt.

Does that 3 year rule also apply to states? My tax returns are pretty complicated (I file in 10+ states).

What I wanted to check is if anyone here had the IRS go back past 3 years on any audit?

My taxes are done by a highly respected CPA firm and by the book, so I am not concerned about discrepancies on them.

Bottom line.... am I safe shredding all tax returns from 2013 and earlier?

Thanks.

jebmke
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Re: How long do I really need to keep tax returns?

Post by jebmke » Fri May 19, 2017 7:33 am

I have kept a copy of the 1040 and schedules going back to the 70s. All are also scanned. After about 5 years or so I pitch all the supporting docs (W2, 1099s. etc).
When you discover that you are riding a dead horse, the best strategy is to dismount.

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dodecahedron
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Re: How long do I really need to keep tax returns?

Post by dodecahedron » Fri May 19, 2017 7:35 am

I have one from 1990 that I need to hang onto until I sell this home (or die), since we deferred capital gains on the sale of our previous home due to the purchase of a new home that year, under a provision of tax law that existed at the time, so I will need it to establish basis when I sell this home.

Other reasons you might need to hang on to returns longer would include IRAs with basis (nondeductible contributions) and multiyear carryover items.

Furthermore, I have occasionally heard of (admittedly rare) cases where a state tax authority comes after a taxpayer years later claiming a required return was never filed decades earlier. The statute of limitations only starts running after you file so if you don't have a return, it is hard to prove you filed. With all your state returns, keeping track of which states you filed in which years might be hard if you don't retain copies.

You might run for high political office some day and want to disclose copies of your returns going back farther than three years.

The IRS has the right to come after to you for "substantial understatement" issues (omitting 25% or more of your gross income from your return) up to six years after you file, so I would certainly keep copies at least six years worth of returns.

Personally, I have kept all our returns (but I am a tax policy wonk and I find these things fascinating. :D Also grateful to my mom for keeping all of hers and my dads' returns going back to the late 1940s, fascinating history there! A walk through tax memory lane.)
Last edited by dodecahedron on Fri May 19, 2017 8:05 am, edited 1 time in total.

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midareff
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Re: How long do I really need to keep tax returns?

Post by midareff » Fri May 19, 2017 7:42 am

I have 20 years scanned and transcripts of the last dozen or so, also scanned. I keep about 7 years in paper. It's what I do and it may or may not work for others.

carolinaman
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Re: How long do I really need to keep tax returns?

Post by carolinaman » Fri May 19, 2017 8:03 am

I believe the IRS requires 3 years, but reserves the right to check returns up to 7 years if issues are found in an audit. I keep 7 years of returns and documentation in paper form to be safe. I also retain a couple of returns from the 80s when we did after tax IRAs just to prove that if necessary.

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Sheepdog
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Re: How long do I really need to keep tax returns?

Post by Sheepdog » Fri May 19, 2017 8:25 am

dodecahedron wrote:

Personally, I have kept all our returns (but I am a tax policy wonk and I find these things fascinating. :D Also grateful to my mom for keeping all of hers and my dads' returns going back to the late 1940s, fascinating history there! A walk through tax memory lane.)

I have all of my original tax returns from 1961, our first year after marriage; however, I have retained supporting documents, only for 7 years. All of my tax returns w/o supporting documents take only one file folder and I find them interesting looking back. For example, all of those early returns are handwritten 1040s, the 1040s torn out of the tax return booklet.
I am looking now at my 1962 return. I was a chemical engineer, married 2 years. I earned $7,445 then, which was considered a very good engineer's salary. We earned $12.41 in interest, our only investment earnings! I itemized deductions totaling $929.33. Our tax bill was $1,092.18.
Then two years later we had our first born, and that financial history is neat to look at. That year I earned $8,325, but my tax due was $892.
Then I see when I finally reached an income in the 5 figures, a milestone, in 1965 ($10,988).
It is indeed a walk through memory lane. I am glad that I kept them all in this one file folder.
People should not say everything they think. They should think about everything they say.

alfaspider
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Re: How long do I really need to keep tax returns?

Post by alfaspider » Fri May 19, 2017 9:48 am

It may depend on your situation. The general statute of limitations for tax is 3 years, but can be extended to 6 years in certain circumstances. If you are claiming a foreign tax credit, there is a special 10-year statue of limitations for foreign tax re-determinations. Other circumstances that might impact how long you should keep returns are things like net operating loss carryfowards.

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BolderBoy
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Re: How long do I really need to keep tax returns?

Post by BolderBoy » Fri May 19, 2017 10:00 am

soccerdad12 wrote:Bottom line.... am I safe shredding all tax returns from 2013 and earlier?

Scan them ALL into separate .pdf files, then shred them.
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

soccerdad12
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Re: How long do I really need to keep tax returns?

Post by soccerdad12 » Fri May 19, 2017 10:44 am

Obviously the PDF files would be pretty sensitive info. Where is everyone keeping these docs? I assume nobody is backing them up with a cloud service. Are you using a hard drive and putting them in a fireproof safe?

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DaftInvestor
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Re: How long do I really need to keep tax returns?

Post by DaftInvestor » Fri May 19, 2017 10:49 am

soccerdad12 wrote:Obviously the PDF files would be pretty sensitive info. Where is everyone keeping these docs? I assume nobody is backing them up with a cloud service. Are you using a hard drive and putting them in a fireproof safe?


I pay $50 a year for a safety deposit box at a local bank. Once a year (after tax time) I swap my home portable backup drive with the one in the vault. If my house burns down - I not only have all my tax returns but also all my digital family photos (at least everything up to 11 months ago at most).
Read the fine print on any fireproof safe you are looking at. Some are fireproof for only a limited amount of time and/or heat. I've heard stories where the safe survived but everything inside was ash - or both the safe and everything inside melted.

jebmke
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Re: How long do I really need to keep tax returns?

Post by jebmke » Fri May 19, 2017 10:50 am

soccerdad12 wrote:Obviously the PDF files would be pretty sensitive info. Where is everyone keeping these docs? I assume nobody is backing them up with a cloud service. Are you using a hard drive and putting them in a fireproof safe?

I keep them in an encrypted file backed up on Google Drive (Cloud).
When you discover that you are riding a dead horse, the best strategy is to dismount.

adamthesmythe
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Re: How long do I really need to keep tax returns?

Post by adamthesmythe » Fri May 19, 2017 10:55 am

I just moved with a half dozen boxes filled with 30 years of tax returns. I am not so much deliberately keeping them as unwilling to dump them without shredding. Scanning would be way too much work.

At some point I will go through them to pick out the recent ones and shred the rest. Haven't decided how many years to keep.

ncbill
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Re: How long do I really need to keep tax returns?

Post by ncbill » Fri May 19, 2017 10:58 am

PDF files on an encrypted virtual drive.

The files are small enough that it's still practical to backup that (few hundred MB) virtual drive to the cloud.

I still have all my paper returns, but toss the annual documents (W2,1099, etc. - not anything related to basis) every 5 years or so.

soccerdad12 wrote:Obviously the PDF files would be pretty sensitive info. Where is everyone keeping these docs? I assume nobody is backing them up with a cloud service. Are you using a hard drive and putting them in a fireproof safe?
Last edited by ncbill on Fri May 19, 2017 11:00 am, edited 1 time in total.

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flamesabers
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Re: How long do I really need to keep tax returns?

Post by flamesabers » Fri May 19, 2017 10:58 am

7 years I think is a good rule of thumb for how long to keep your tax returns. You may want to keep your tax returns for longer if you think you might need them for reference purposes or if you might get curious about how much you paid in taxes in 10+ years ago.

Geologist
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Re: How long do I really need to keep tax returns?

Post by Geologist » Fri May 19, 2017 11:21 am

I've had a number of tax accountants say you should keep the tax returns themselves forever. You can get rid of supporting info except that related to open investments (taxable investments, house). If you are sure the Social Security Administration has credited your W-2 earnings correctly, then you could get rid of them.

You certainly want to keep tax forms related to retirement plans (8606, investment firm 5498's) because these document the tax basis of your IRA contributions over the years. We have had any number of threads from people who vaguely recall making IRA contributions that they didn't deduct from their taxes but have no records now or people who want to withdraw Roth IRA contributions but don't have their own records (which would be on the 5498's that the custodians send out annually). No matter what you think about financial institutions or the IRS, in the end it is your responsibility to keep records like this.

mptfan
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Re: How long do I really need to keep tax returns?

Post by mptfan » Fri May 19, 2017 11:23 am

soccerdad12 wrote:Obviously the PDF files would be pretty sensitive info. Where is everyone keeping these docs? I assume nobody is backing them up with a cloud service.

I am.
I eat risk for breakfast. :)

Dan999
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Re: How long do I really need to keep tax returns?

Post by Dan999 » Fri May 19, 2017 12:46 pm

So, I have decades of tax returns with the detail. During these years I bought a home to live in, then traded up to new more expensive homes.
I am confused about how the exclusion on the sale of a house works. We are retired and if we go into a CCRF, our net proceeds will be around $500,000.
Our current house cost $335,000 15 years ago. Do I need to keep the closing documents etc from the last several decades. I do not remember my tax returns ever including any data on house sales and purchases.
I think the capital gains would be excluded up to $500,000 for a joint return. What would I have to prove on my tax return if the house sold for $500,000 or $600,000?
As best I can see in looking at the form, I would be excluding all of the gain even if it sold for $600,000.
Anyway, how far do I need to go back to keep the returns to avowing a capital gain on the sale of my house?
Thanks in advance. My wife is bugging me to throw out (shred) the oldest returns, and I think she is right, but just want to make sure.
Thanks
Dan999

mikep
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Re: How long do I really need to keep tax returns?

Post by mikep » Fri May 19, 2017 1:24 pm

I keep them all forever since I have roth contributions and unreimbursed medical expenses from my HSA. Once you reimburse, you have to prove that you didn't reimburse those or deduct them before. I think the only way to prove that is to keep the actual tax returns.

Admiral
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Re: How long do I really need to keep tax returns?

Post by Admiral » Fri May 19, 2017 1:34 pm

I keep tax returns forever, in a file cabinet off the floor in my basement) and brokerage statements as well. Each year I shred all supporting return documents that have become 8 years old.

Now that they are PDFs and not paper I keep them on a thumb drive in a fireproof box (though the paper ones won't fit in there so that probably does not make sense. Guess I should start scanning the old ones!)

I don't trust online backups to not be compromised at some point.

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