Now that this year’s unusual tax season is in the rearview mirror and most taxpayers have filed their 2019 returns, the question may arise: What tax records should be kept and what can be shredded and tossed?

Now is a good time to go through old tax records and see what you can discard.

Three years… or six years?

At minimum, you should keep tax records for as long as the IRS could audit a tax return or assess additional taxes, which generally is three years after you file your return. This means you potentially can get rid of most records related to tax returns for 2016 and earlier years.

However, the statute of limitations extends to six years for taxpayers who understate their adjusted gross income (AGI) by more than 25%. What constitutes an understatement may go beyond simply not reporting items of income. So a general rule of thumb is to save tax records for six years from filing, just to be safe.

Keep some records longer

You need to hang on to some tax-related records beyond the statute of limitations. For example:

• Keep the tax returns themselves indefinitely, so you can prove to the IRS that you filed legitimate returns. (There’s no statute of limitations for an audit if you didn’t file a return or if you filed a fraudulent one.)
• Retain W-2 forms until you begin receiving Social Security benefits. Questions might arise regarding your work record or earnings for a particular year, and your W-2 helps provide the documentation needed.
• Keep records related to real estate or investments for as long as you own the assets, plus at least three years after you sell them and report the sales on your tax return (or six years if you want extra protection).
• Keep records associated with retirement accounts until you’ve depleted the accounts and reported the last withdrawal on your tax return, plus three (or six) years.

Other reasons to retain records

Keep in mind that these are the federal tax record retention guidelines. State and local tax record requirements may differ. In addition, lenders, co-op boards and other private parties may require you to produce copies of your tax returns as a condition for lending money, approving purchases or otherwise doing business with you.

See the attached Record Retention Guide published by the Massachusetts Society of Certified Public Accountants for additional guidance.

Contact us if you have questions or concerns about recordkeeping.