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 »

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 »

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 »

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 »

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 »

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 »

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.
Unless you try to do something beyond what you have already mastered you will never grow. (Ralph Waldo Emerson)
alfaspider
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Re: How long do I really need to keep tax returns?

Post by alfaspider »

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

Post by BolderBoy »

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.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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soccerdad12
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Re: How long do I really need to keep tax returns?

Post by soccerdad12 »

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

Post by SmileyFace »

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

Post by jebmke »

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 »

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 »

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 »

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 »

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 »

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

Post by Dan999 »

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

Post by mikep »

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 »

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

Post by ClevrChico »

Sheepdog wrote: 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.
Sheepdog, that is amazing! I wish I still had my old returns!
Caliscotsman
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Re: How long do I really need to keep tax returns?

Post by Caliscotsman »

https://www.forbes.com/sites/robertwood ... bae65e7ba6

Mine's are all pdf's. Insubstantial in size.
Stored in several places digitally including thumb drives in my safe. Fun to look at now and again.
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Re: How long do I really need to keep tax returns?

Post by Invest4lt »

mptfan wrote: 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.
Same here. Everyone has their own level of comfort/discomfort with cloud storage, but it seems to me to be the easiest way to store data offsite which can be easily recovered. To be honest, after the Equifax and other data breaches, I'm not sure how much to worry about my tax return data in relationship to the other data that has already been compromised.
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Re: How long do I really need to keep tax returns?

Post by Katietsu »

Geologist wrote: 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.
Yes! Because we do not always know what we will need in advance. At 40, you might be sure you will never make a Roth withdrawal before 59.5 years, sell your house for more than a $250k/$500k profit, or need to separate a capital loss between yourself and a deceased spouse. But things things happen and tax laws change too.
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Re: How long do I really need to keep tax returns?

Post by Apathizer »

If you file them online you don't need to literally keep anything since they're cloud stored. Simple.
ROTH: 40% AVUS, 20% AVDE, 15% AVEM, 25% BNDW. Taxable: 50% BNDW, 30% AVUS, 12% AVDE, 8% AVEM.
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climber2020
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Re: How long do I really need to keep tax returns?

Post by climber2020 »

Before people filed taxes online, what would happen if your house burned down along with all your paper tax returns and then you got audited?

This has to have happened to at least a few people.
hudson
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Re: How long do I really need to keep tax returns?

Post by hudson »

soccerdad12 wrote: 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.
I'm not an expert, but I would shred everything before 2016.
The IRS has all of my returns on their website from 2016 to 2021.
If you have anything iffy on your returns, save the backup stuff.
If not, shred away.
MGBMartin
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Re: How long do I really need to keep tax returns?

Post by MGBMartin »

My wife and I have every tax return since 1981.
A few years ago we did a clean out and decided to shred everything tax related except the actual tax return forms themselves, not sure what our thinking was.

Earlier this year my wife applied for a pension from a large hospital she worked years ago.
Something seemed off with the hospital’s recognition of years and salary credited.
After a lot of back and forth the hospital showed which years and salary they used but when asked why certain other years were not used they said they no longer have those records. Their reasoning was the years were not applicable so were no longer kept on record; but said if we have W2’s for the missing years they would review them. They even had the nerve to say, well we are talking about records from 40 years ago in reference to their not keeping the records.

Anyhow, because we had saved our state tax forms for the period and for some reason we filed joint but separate state returns we could ascertain how much income the wife had from that job.

The wife filed an appeal on her pension determination submitting copies of the tax returns.
The appeal was successful and the hospital pension administrator said the tax return copies were the deciding factor and adjusted her pension accordingly. It wasn’t a huge adjustment but a win non the less.

Normally I would never of thought we would need tax records from 40 years ago but we did.
Autocorrect is my worst enema
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grabiner
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Re: How long do I really need to keep tax returns?

Post by grabiner »

MGBMartin wrote: Tue May 10, 2022 8:39 pm My wife and I have every tax return since 1981.
A few years ago we did a clean out and decided to shred everything tax related except the actual tax return forms themselves, not sure what our thinking was.

<snip>
The appeal was successful and the hospital pension administrator said the tax return copies were the deciding factor and adjusted her pension accordingly. It wasn’t a huge adjustment but a win non the less.

Normally I would never of thought we would need tax records from 40 years ago but we did.
I have a similar experience, but with the taxes themselves. In 1997, I worked at the University of Michigan, and contributed to a 403(b) plan. I rolled this 403(b) plan into a traditional IRA, then converted it to a Roth IRA in 2010. Under the 2010 tax laws, I could pay tax on the conversion in 2011-2012. In 2011, I was a resident of NJ. Since NJ does not allow a deduction for 403(b) contributions, any amount contributed to a 403(b) is not taxed by NJ upon withdrawal (or withdrawal from the IRA to which it was rolled over). The only record I had of how much I had contributed to the 403(b) was my Form W-2 for 1997, so I needed this form in order to fill out my 2011 and 2012 NJ state tax form correctly.
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Re: How long do I really need to keep tax returns?

Post by Cruise »

soccerdad12 wrote: Fri May 19, 2017 7:17 am
My taxes are done by a highly respected CPA firm and by the book, so I am not concerned about discrepancies on them.
What does your highly respectful CPA firm suggest, and why are you soliciting contrary opinions from random people on the internet?
DarkHelmetII
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Re: How long do I really need to keep tax returns?

Post by DarkHelmetII »

soccerdad12 wrote: 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?
backblaze with encrypted key. nothing is 100% safe but there are reasonable trade-offs, IMHO.
Eno Deb
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Re: How long do I really need to keep tax returns?

Post by Eno Deb »

Apathizer wrote: Tue May 10, 2022 7:38 pm If you file them online you don't need to literally keep anything since they're cloud stored. Simple.
But do they also keep the supporting documents? They are most important in case of an audit.
Eno Deb
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Re: How long do I really need to keep tax returns?

Post by Eno Deb »

DarkHelmetII wrote: Wed May 11, 2022 5:12 am
soccerdad12 wrote: 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?
backblaze with encrypted key. nothing is 100% safe but there are reasonable trade-offs, IMHO.
I keep mine encrypted in a Veracrypt container file, of which I have multiple local copies and one in a cloud service. Just need to make sure that you don't forget the passphrase. :wink:
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8foot7
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Re: How long do I really need to keep tax returns?

Post by 8foot7 »

I shred everything after seven years. I have a reminder every December to make sure Social Security wages are credited correctly. We have no pensions nor assets from long ago that would need documentation for which to establish a basis. We hardly have anything anymore that isn't also reported to the IRS, so I figure if they say seven years and our financial partners have already shared most of this information with them anyway, I don't need to bother saving things.

I do still have all of the Turbotax files from the years I prepared taxes, and don't plan to be rid of them. I do understand there is a risk that I won't be able to read that file format in 25 years. I also think, come what may.

I do think there is a risk to keeping all of this stuff around. It is probably unquantifiable. But I'm not interested in being able to produce a record from 17 years ago and I think for whatever benefit there might be in being able to do so, there is also a risk that having that document opens other documents from that period up to examination. I can't produce something that doesn't exist. Anyway, just my feelings and my way of doing things. Your mileage may vary.
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Re: How long do I really need to keep tax returns?

Post by sureshoe »

The answer to this is:
Usually 3 years is sufficient, but might be eternity

If you are just a W2 without any exotic deductions, 3 years should be fine. I have old W2s, and PDFs for more years, but I don't make any additional retention efforts.

If I ran a business and was doing complex tax gyrations, I might have a different point-of-view.
homebuyer6426
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Re: How long do I really need to keep tax returns?

Post by homebuyer6426 »

I keep them all, physically and on free cloud storage/local hard drive. They don't take up that much space. Never know when they might be relevant again.
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Re: How long do I really need to keep tax returns?

Post by Lee_WSP »

I scan and store important documents for as long as my cloud service remains viable. I destroy the paper records immediately.
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Re: How long do I really need to keep tax returns?

Post by Apathizer »

Eno Deb wrote: Wed May 11, 2022 9:49 am
Apathizer wrote: Tue May 10, 2022 7:38 pm If you file them online you don't need to literally keep anything since they're cloud stored. Simple.
But do they also keep the supporting documents? They are most important in case of an audit.
I think most of the supporting documents are stored online as well.

My taxes are fairly simple and I file them honestly and I'm not obsessed with paying as little tax as possible, so I'm not worried.
ROTH: 40% AVUS, 20% AVDE, 15% AVEM, 25% BNDW. Taxable: 50% BNDW, 30% AVUS, 12% AVDE, 8% AVEM.
markcoop
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Re: How long do I really need to keep tax returns?

Post by markcoop »

I have moved to all virtual. I have softcopies of my returns going back to 2002 and paper returns going back another 15 years. I recently (last 2 years) started to scan supporting documents. They are saved on my computer and backed up in the cloud. I expect to keep the softcopies. I am not going back to scan any past paper. At some point (probably my next move), I will throw out all my old paper returns.
Mark
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Re: How long do I really need to keep tax returns?

Post by ddbtoth »

Sheepdog wrote: 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.
You’re a weird dude.
twh
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Re: How long do I really need to keep tax returns?

Post by twh »

[plagiarized from a recent article I read]

Retain a paper copy or receipt of any tax-relevant financial exchange. The IRS has ruled bank or credit card records to be insufficient documentation.

If the purchase was a business or tax-deductible expense, record the expense and why it justifies the deduction.

Keep brokerage statements indefinitely for taxable accounts. You are responsible for reporting the cost basis of any security you sell to calculate the capital gains tax. Sometimes be computed only if you have the complete transaction history. Without knowing the cost basis, the IRS could argue that the entire value of the investment be treated as gain.

Keep IRA nondeductible contribution records forever. You may need those records every year that you withdraw money in retirement to show that a portion of the withdrawal is not tax deductible. Or, better yet, clear out nondeductible IRA contributions by converting all of your IRA accounts to Roth accounts.

Keep partnership documents, contracts, commission or royalty structures forever. This includes property records, deeds and titles, especially those relating to intellectual property. It also includes any transfers of value for estate planning purposes.

Save all of your tax returns, because...

Tax returns and all the supporting documentation must be kept at least seven years.

The IRS can audit your return for up to three years from your filing date -- BUT BUT BUT, the three-year limit only applies to good-faith errors.

If the IRS suspects you underreported your gross income by 25% or more, they have up to six years to challenge your return.

BUT BUT BUT, if the IRS suspects you filed a fraudulent return, no statute of limitations applies.
AnEngineer
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Re: How long do I really need to keep tax returns?

Post by AnEngineer »

twh wrote: Wed May 11, 2022 9:46 pm BUT BUT BUT, if the IRS suspects you filed a fraudulent return, no statute of limitations applies.
This is why my answer is forever.
Katietsu
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Re: How long do I really need to keep tax returns?

Post by Katietsu »

Apathizer wrote: Wed May 11, 2022 12:39 pm
Eno Deb wrote: Wed May 11, 2022 9:49 am
Apathizer wrote: Tue May 10, 2022 7:38 pm If you file them online you don't need to literally keep anything since they're cloud stored. Simple.
But do they also keep the supporting documents? They are most important in case of an audit.
I think most of the supporting documents are stored online as well.

My taxes are fairly simple and I file them honestly and I'm not obsessed with paying as little tax as possible, so I'm not worried.
Who is storing them online? The software company? Some give you no access to past years, some keep them for 3 years and some for 7. There are probably some other variations. But, generally, no tax software company is keeping them forever.
Apathizer
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Re: How long do I really need to keep tax returns?

Post by Apathizer »

Katietsu wrote: Thu May 12, 2022 9:58 pm
Apathizer wrote: Wed May 11, 2022 12:39 pm
Eno Deb wrote: Wed May 11, 2022 9:49 am
Apathizer wrote: Tue May 10, 2022 7:38 pm If you file them online you don't need to literally keep anything since they're cloud stored. Simple.
But do they also keep the supporting documents? They are most important in case of an audit.
I think most of the supporting documents are stored online as well.

My taxes are fairly simple and I file them honestly and I'm not obsessed with paying as little tax as possible, so I'm not worried.
Who is storing them online? The software company? Some give you no access to past years, some keep them for 3 years and some for 7. There are probably some other variations. But, generally, no tax software company is keeping them forever.
Vanguard stores the forms quite awhile, and I also download them. I'm not worried about anything older than about 5 yrs. Unless there's major suspicion it's unlikely they'll audit anything older.

I've never been audited and the few minor mistakes I've made were easily resolved so I'm not concerned.
ROTH: 40% AVUS, 20% AVDE, 15% AVEM, 25% BNDW. Taxable: 50% BNDW, 30% AVUS, 12% AVDE, 8% AVEM.
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FrugalInvestor
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Re: How long do I really need to keep tax returns?

Post by FrugalInvestor »

I have one plastic standard size file tote. When it fills up I toss all the backup for the oldest returns and just keep the return itself.

In the tote I now have about 15 years of returns with backup, each in a manila envelope, and two manila envelopes with many more years of returns only, no backup. It's a lot more than I actually need but I just manage it to be no more than one tote as the years go on.
Have a plan, stay the course and simplify. Then ignore the noise!
JackoC
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Re: How long do I really need to keep tax returns?

Post by JackoC »

twh wrote: Wed May 11, 2022 9:46 pm [plagiarized from a recent article I read]

Retain a paper copy or receipt of any tax-relevant financial exchange. The IRS has ruled bank or credit card records to be insufficient documentation.

If the purchase was a business or tax-deductible expense, record the expense and why it justifies the deduction.

Keep brokerage statements indefinitely for taxable accounts. You are responsible for reporting the cost basis of any security you sell to calculate the capital gains tax. Sometimes be computed only if you have the complete transaction history. Without knowing the cost basis, the IRS could argue that the entire value of the investment be treated as gain.

Keep IRA nondeductible contribution records forever. You may need those records every year that you withdraw money in retirement to show that a portion of the withdrawal is not tax deductible. Or, better yet, clear out nondeductible IRA contributions by converting all of your IRA accounts to Roth accounts.

Keep partnership documents, contracts, commission or royalty structures forever. This includes property records, deeds and titles, especially those relating to intellectual property. It also includes any transfers of value for estate planning purposes.

Save all of your tax returns, because...

Tax returns and all the supporting documentation must be kept at least seven years.

The IRS can audit your return for up to three years from your filing date -- BUT BUT BUT, the three-year limit only applies to good-faith errors.

If the IRS suspects you underreported your gross income by 25% or more, they have up to six years to challenge your return.

BUT BUT BUT, if the IRS suspects you filed a fraudulent return, no statute of limitations applies.
That's mostly what I do, not absolutely. Tax returns themselves are easy to keep in the age of tax software. I have mine from mid 90's when I started using software. They take up little room on CD/DVD in safe deposit box besides on current computer's drive and back up drive. No, I don't worry relatively about being victimized by somebody getting my old tax returns, doubt that would be the way to go after somebody like me among all the other more direct ways. I don't get rid of the paper record of buying (establishing basis) for investments till the normal window closes on auditing the return from when I sold it. IOW I don't have purchase records for mutual fund shares I bought in the 80's, funds I long ago sold. I do have the paper purchase records for early '90's stuff I still own. That's separate from tax return supporting docs for each year. The latter envelopes I empty and shred when no more room in the particular file drawer I keep them, generally 9-10 yrs worth depending on thickness of envelopes. :happy

On business side (rental real estate LLC that dates from 2010's) I do not cross all i's and dot all t's as in having a receipt for every single expense rather than that just accounting spreadsheet plus bank/CC record that it was paid (there is a narrative comment for each). 'Mom and pop', small chance of audit and given that unlikely audit I doubt they'll disallow for example several years of gas bills at X property because I only have the bank record of having paid them. Maybe they legally could, but I don't think that scenario is likely enough to justify the cumulative work of filing/scanning, and I could probably eventually get the records from the gas company. I do scan eg. relatively big contractor bills, and once I save it electronically it's unlikely I'd go to the trouble of deleting it.

I agree with the article and general wisdom, long term non-deductible IRA seldom a good idea, should mainly exist for periodic Roth conversion. But I don't cheat on taxes, nor can I see how my 'fact pattern' would particularly suggest I do. Therefore, I don't see a reason to tailor my record keeping to the assumption of a false accusation of fraud. I'm not saying it's impossible, just again not worth the trouble to keep all records I'd need to fight a false accusation of fraud that negates statutes of limitations.
niagara_guy
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Re: How long do I really need to keep tax returns?

Post by niagara_guy »

I had to file some form 8606s going back about 20 years, I wish I had kept the old returns even though I did not need them. My view is it's good to keep copies of all the old returns.
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HMSVictory
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Re: How long do I really need to keep tax returns?

Post by HMSVictory »

Scan them into PDF format and keep them forever. Might want to go to a Kinkos for a super high capacity machine.
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Re: How long do I really need to keep tax returns?

Post by Vanguard User »

I don’t keep any tax info. Why do I need to? It’s just clutter.
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