How Long Should You Keep Tax Records? A Guide for Millennials

In the age of minimalism, decluttering is in vogue, but what about those stacks of tax-return records gathering dust?

Understanding Statute of Limitations and Record-Keeping

It’s crucial to retain tax records for a minimum of three years after filing, which is the IRS statute of limitations for audits. However, consider extending this period if you prefer a risk-averse approach to document retention.

Extended Statute of Limitations

If your gross income is understated by more than 25%, the IRS extends the audit period to six years. Remember, there’s no statute of limitations for cases involving tax fraud, so keep records accordingly.

Types of Records and Their Lifespan

The duration you should keep tax records varies based on the type of documentation:

Supporting Documents: Keep receipts, expense logs, bank statements, and sales records for at least three years post-filing to substantiate claims made on your tax return.

Real Estate Records: Hold onto records related to home sales and improvements until three years after selling the property. These records establish the basis for determining taxable gains or losses and can maximize home sale gain exclusions.

Bad Debts: You can amend your return up to three years after filing to claim deductions for bad debts or worthless securities. Keep these records for seven years to protect your financial interests.

Securities Transactions: Maintain detailed records of stock, bond, and other securities transactions as long as you own the investments, plus the three-year statute of limitations for audits.

IRAs and Retirement Accounts: Keep records of IRA transactions, including required minimum distributions (RMDs) and Roth IRA distributions, for at least three years after the accounts are emptied.

Practical Tips for Record-Keeping

• Be Safe, Not Sorry

  : It’s wise to keep tax records longer than required by law to safeguard against unexpected audits or disputes.

• Digital Storage

  : Consider digitizing records for easier access and long-term storage.

• Consult with a Tax Professional

  : Seek advice from an accountant to ensure compliance with IRS guidelines and optimize your record-keeping strategy.

Conclusion

Understanding how long to keep tax records is crucial for financial health and compliance. By following these guidelines and maintaining organized records, Millennials can navigate tax obligations with confidence and peace of mind.