Larry Hess CPA
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? If you want to be safe, keep most tax records for 6 years after your return is filed.
The basic statute of limitations gives the IRS 3 years from the date you file your return to audit your return. New Mexico's rule is a little different. Their 3-year clock starts running in the year in which your return is due and runs until December 31 of the 3rd year.
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 under-reporting 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. Also read Can I get a refund on an old return?
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.)
Scanning: You don't have to keep the actual paper records - you can scan them. Your 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 - names like Scan01 or IMG2021062501 don't tell you about the document in the file. And be sure you have backups in case your computer is lost, stolen or you hard drive needs to be replaced.
Also read Get copies of tax returns & transcripts