The information contained in this post is not intended to replace the advice of a qualified tax professional.
Ever since copies of Marie Kondo’s “Tidying Up’ started flying off the shelves, decluttering has become a thing. Your old bank statements, tax returns, and other financial clutter keep piling up, and they definitely don’t “spark joy.” How long should you hold onto old documents?
As badly as you would like to toss or shred them, keep in mind the timetable for each. Shred what you can, and scan and store the rest.
Read up on your state’s record retention requirements. They may be different than the IRS. For example, the California State Franchise Tax Board has up to four years to initiate an audit of your state return.
Pay stubs and brokerage statements: Hold onto these for one year, and them compare them to your year-end W2 and 1099 statements. Keep the w2’s and 1099s, and shred the statements.
Three years: hold onto the following for at least three years after the tax filing deadline:
- Tax-deductible retirement plan records
- 1098 from your lender if you deduct your mortgage interest each year
- W2s from each employer
- 1099 forms for freelance work and investments
- Expense records for withdrawals from your HSA (Health Savings Account)
- Withdrawal records for 529 college savings plans
- Receipts for any charitable contributions (only if you itemize)
- Roth IRA contribution records (for three years after account has been depleted)
- Home-purchase and home improvement documentation (retain for three years after you’ve sold the home. See IRS publication 523 for guidance on establishing your basis for tax purposes
- Records of stocks, bonds, and other investments sold
If you’re among the taxpayers who don’t itemize their deductions and take the standard deduction instead, you won’t need to hold onto as many documents and receipts.
Hold onto the following for six years:
The IRS has up to six years to open an audit if you’ve failed to report 25% of your taxes. If you have side gigs in addition to your regular job, it’s easy to lose track of that income since not all clients will issue a 1099.
Hold onto your income/expense reports and 1099s for six years, just to be safe. The same goes for any supporting documentation for income and expenses, such as receipts.
It’s also a good idea to hold onto to the applicable tax returns for six years as well.
Retain for 10 years:
If you paid taxes to a foreign government, you could be eligible for a credit or deduction on your U.S. return. You have the option of claiming either a credit or a deduction. Furthermore, you have up to 10 years to change your mind with regard to that credit or deduction.
Hold onto those records, just to be safe.
De-cluttering your financial records lightens the load and makes it easier to find important documents should your return be audited, or if you need to correct a previous return. Before you warm up the shredder, however, keep in mind the above guidelines for retaining important tax documents.
When in doubt, always consult with a tax professional who can advise you regarding your specific tax scenario. You may be free to toss some things sooner or hold onto them for longer than recommended.