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How Long Do Federal and State Tax Returns Need to Be Kept?

Updated for Tax Year 2016


OVERVIEW

If the IRS or state government questions your tax deductions or business losses, you may need a copy of your return.


Dropping a tax check in the mail doesn't mean you can then throw out the paperwork.

If the IRS or state government questions your deductions or business losses, you may need a copy of your return -- not to mention W-2s and other documentation -- to prove your return was accurate.

However, there are limits to how far back the government can look.

IRS documentation requirements

The IRS recommends taxpayers keep their returns and any supporting documentation for three years after the date of filing; after that, the statute of limitations for an IRS audit expires.

If you've under-reported income by 25 percent, however, the IRS can go six years back, or seven if you claim a loss for bad debt or worthless securities.

If you don't file, or if you file a fraudulent return, the IRS has no statute of limitations; so it may be best to keep your records indefinitely.

State documentation requirements

If you're paying state income taxes, the time you need to keep records will depend on state law.

Some states can look back further than the IRS. California and Arizona, for example, have a four-year statute of limitations; Montana has a five-year statute. The period for investigating if the return under-reports income or falsifies data may also be longer.

Best to check with your state tax authorities to get specifics.

Record-keeping on assets

You might be wise to keep records on assets such as stocks, bonds or your house longer than the statute of limitations suggests.

If you sell a house, for instance, you'll need a record of the purchase price and any improvements you've made to figure out the basis for your capital-gains tax. If you claim depreciation on a rental property or business computer, you'll need records for that, too.

The IRS recommends hanging on to your files for assets until the statute of limitations expires for the year in which you sell them.

Organizing your tax records

If you have an efficient record-keeping system, it can make finding information a lot easier. The IRS has no particular standards or requirements for how you organize and file material, neither do state taxing authorities; their only concern is that when they want to see a document, you're able to deliver it promptly.

IRS Publication 552 offers detailed hints and advice on which records to keep, whether they're hard copy or in electronic form.

If you use a TurboTax CD or download product, your tax return will be stored on your computer. It's a good idea to also print a copy for your records and keep a backup file on an external drive or disc.

If you use TurboTax Online to prepare your taxes, we'll keep a secure copy of your tax return for you to access online.

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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


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