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How Long Should I Keep Tax Records and Bank Statements?

How Long Should I keep Tax Records and Bank Statements

Ever wonder how long you should hold onto your tax records and bank statements? In this article, I’m going to tell you what you need to know.

Which documents should I keep?

Any documents that have to do with your tax return you should keep. That includes the tax return, the workpapers, and depreciation schedules that come with the tax return, and the information returns that are provided to you to prepare the tax return. Information returns are W-2s, 1099s, 1099-Bs (from your trading brokerage – like Robinhood or Fidelity). Other that your Tax Return, here’s a list what else you should keep:

Information Returns:

  • Income Tax Returns – Form 1040 and accompanying State Income Tax Returns
  • Income Records – 1099s, W-2s, 1099-Rs, and bank statements
  • Expense Records – 1098 Mortgage Interest, 1098-E (student interest), 1098-T (tuition expenses)
  • Investment Records – 1099-B (brokerage like Robinhood or Fidelity), HSA tax statements, 3921 from ISO stock options

Other Expenses

  • Home purchase and sales records
  • Home improvement expenses
  • Documents regarding Bad Debt or loss on Worthless Securities
  • Large medical expenses
  • Bank Statements that show these transactions

How long should I keep my tax records and bank statements?

CPAs, including myself, recommend keeping your tax records and bank statements, going back for 7 years. The reason for that is because that’s usually how long the IRS has to audit you (IRS statute of limitation). However, if you have a large transaction that took longer than that to complete, you should keep those records too.

How long does the IRS have to audit you?

In general, the IRS has 3 years to go back and audit you. However, if you under report your income 25% or more, the IRS has 6 years audit you. That’s why CPAs tell you to keep your tax returns for 7 years going back, just to be safe.

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Which documents should you never throw away?

Here are examples of tax records you should keep longer that 7 years, and in some cases never throw away:

Buying a Home

You purchased a home in 2015 and didn’t sell it until 2024. You should keep the settlement statement from purchasing the home from 2015. That’s because the IRS is going to want proof of how much you purchased the home for. Also, any receipts or expenses from improving the property you should also keep.

Gift Tax Returns

If you give anyone a gift over $18,000 (2024 exclusion amount) you need to file a Gift Tax Return. You must keep those gift tax returns forever. They will be needed once you pass away by the administrator of your estate when you pass away.

Tax Returns that show a Net Operating Loss

When I worked at the IRS, if we saw a large NOL (“net operating loss”) that went back over many years, we would require all the tax returns and documents that showed how the NOL was created.

Bad Debts and Worthless Securities

If your write off bad debts from people that owe you money, or from investments in private securities that go worthless, you should keep those documents that show how and when you made original the investments.

What if you’re not sure?

If you’re not sure that you should keep or discard the documents, please check with your CPA or tax return preparer before throwing anything away.