How long should I keep my tax records?

Discarding tax records too soon can be costly.

The general rule

 

You must save your tax records as long as your tax return can be audited. So how long is that? 3 years from the date you file your return.  Note that New Mexico can audit  your return until December 31 of the 3rd year after the return is due (not filed)
 

There are exceptions

  • 6 years if you do not report income and the amount not reported is more than 25% of the gross income shown on your return. For New Mexico the threshold is underreporting 10% of the tax.

  • For a claim for credit or refund, the SOL is 3 years from the date you filed your original return or within 2 years of the last payment you made. Important: Applying the refund SOL can be very confusing.

  • 7 years if your claim is due to a bad debt deduction or due to a loss from worthless securities.

  • Practically indefinitely for capital assets (see below) or the life of the assets & after, even when you dispose of the asset.

  • Indefinitely if no return is filed.

  • Indefinitely if a fraudulent return is filed. 

  • Keep records relating to investments, real estate, business equipment & vehicles used in business and other capital assets until the period of limitations expires for the year in which you dispose of the property in a taxable transaction.  You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property.

  • If you received property in a nontaxable exchange or by gift, you must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.

 

What should I do with my records?

When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. For example, your insurance company or creditors may require you to keep them longer than the IRS does. If you're not sure what to keep or for how long, you can scan them and save them on your computer. (Just be sure you have backup in case of computer problems.)

Tip: You don't have to keep the actual paper records - you can scan them. Y9ur virtual filing system should enable you to find documents when you need them. Giving digital files descriptive names is the key; don't just accept the default name given by your scanning software that may look like Scan01 or IMG2021062501. And be sure you have backups in case your computer is lost, stolen or you hard drive needs to be replaced.