Keep the records. Know the clock.

The retention clock

The rule—and the exceptions

The IRS says to keep records that support income, deductions, or credits until the limitation period for that return expires. The period depends on the event and the kind of return; these are federal income-tax guidelines, not a one-size-fits-all deadline.

1. 3 years

   Generally, the IRS has three years from when you file to assess additional tax. A return filed before its due date is generally treated as filed on the due date.

2. 6 years

   If you omit more than 25% of the gross income shown on your return—or omit more than $5,000 of income attributable to foreign financial assets—the IRS says the assessment period is six years from filing.

3. 7 years

   The claim period is seven years from the return due date for a refund claim based on an overpayment resulting from a bad debt deduction or a loss from worthless securities. Keep the records that support such a claim.

4. No limit

   The IRS states there is no assessment time limit when you don’t file a valid return or file a fraudulent return; keep the related records indefinitely.

5. Property

   Keep basis records until the limitation period expires for the year you dispose of the property in a taxable disposition. For a nontaxable exchange, keep records for the old and new property until the period expires for the year you dispose of the new property.

6. At least 4

   If you employ workers, keep employment-tax records for at least four years after the tax is due or paid, whichever is later.

One more distinction: a refund claim filed after the original return is generally due within three years of filing that return or two years after paying the tax, whichever is later. Check the IRS guidance for other exceptions and how they apply.

Build a useful file

A year-by-year checklist

Make a folder for each tax year, then keep the return with the records that support what you reported. This is a practical starting list, not a special format required by the IRS.

• A copy of the filed federal return and the documents used to prepare it.
• Income records, such as Forms W-2 and 1099, plus statements or other records supporting income reported.
• Receipts, invoices, canceled checks, and other documents supporting deductions or credits claimed.
• Records needed to establish property basis and calculate gain or loss when property is sold or otherwise disposed of.
• Health-insurance coverage and premium information if you claim the Premium Tax Credit.
• If you employ workers: employment-tax records, kept for the separate four-year minimum.