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Record Retention

Storing tax records: How long is long enough?

Our short answer: At least seven years.

What should you do with your shoeboxes full of receipts and other tax documents after your annual return is filed?  Wondering when you can purge the storage boxes in your garage/office storage room?

The federal statute of limitations for an IRS audit is three years in normal circumstances, which means the IRS could audit your return up to three years from the due date or date of filing, whichever is later.  This leads many people to believe they’re safe provided they retain their documents for this period of time.

However, if the IRS believes you have significantly underreported your income (by 25 percent or more), or believes there may be indication of fraud, it may go back six years in an audit, or seven years if you claim a loss for bad debt or worthless securities. If you file a fraudulent return, there is no statute of limitations.

Some states have statutes of limitations that differ from those of the IRS.  For example, here in Arizona the limit is four years.  You may find several different sources recommending different lengths of time for the same documents.  Therefore, to be safe, we recommend saving everything that is used to support the numbers on your personal or business tax returns for seven years.

For businesses, there are additional requirements relating to retention of employment records.  A nice summary can be found at the Society for Human Resource Management.  https://www.shrm.org/ResourcesAndTools/legal-and-compliance/employment-law/Documents/Federal%20Record%20Retention%20Chart.pdf

Some business and personal records should be retained indefinitely, such as property records, partnership and operating agreements, year-end financial statements, etc.

Caution: Identity theft is a serious threat in today’s world, and it is important to take every precaution to avoid it. After it is no longer necessary to retain your tax records, financial statements, or any other documents with your personal information, you should dispose of these records by shredding them.  DO NOT merely throw them away in the trash.