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How Long Should I Keep My Tax Returns?

Taxes Blog - JLFranklin Wealth Planning

The IRS gives three answers, depending upon time and how confident you are that your returns are complete:

  1. 3 Years: Keep your tax returns—and all supporting documentation such as W-2s and 1099s—for at least three years from the return due date.
  2. 6 Years: If your return omits more than 25% of your income, the IRS can assess back taxes for up to six years.
  3. Forever: If there’s proven fraud, the lookback period is unlimited. (This is how Al Capone got busted.)

But don’t stop there. Assets you still own, such as a home, stock, or company equity may eventually be sold, and you’ll need to prove how much you paid for them to keep your capital gain tax low. Keep records related to asset purchases for at least three years beyond the due date of the return reporting the sale.

If you inherit property, find the value on the date of death to determine the gain when the asset is sold. The sales price less the date of death value of the asset will be your gain.

A gift of real estate, stock, or other property retains the original owner’s cost basis. Be sure to keep records from an inheritance and gifts for at least three years after the due date of the return that reports the disposition.

Making non-deductible contributions to an IRA brings another set of recordkeeping requirements. Report contributions on Form 8606. When it comes time to withdraw the money, be sure to report the after-tax withdrawal as a percentage of the total, so that you’re not taxed twice; you paid tax on the contribution, which will be tax-free when withdrawn.

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