New year, new tax season approaching.

If your resolution this year is to de-clutter, you might want to be careful before tossing literally everything.

The IRS shares some general tips on how long you should keep your tax records (and other important documents as well) to help with future filing, amends, and audits. Small business owners – while these tips are great for you and your business, they also apply to personal taxes, so you might want to share with employees as well.

How long should I keep tax records?

Here’s a general breakdown.

The IRS’ general recommendation is to keep copies of tax returns and supporting documents for at least three years.

For employment tax records, it recommends keeping those for at least four years after the date that the tax becomes due or paid (whichever is later).

If a return claims a loss from worthless securities or bad debt deduction, the IRS suggests keeping those tax records at least seven years.

Here are more specific details.

The IRS goes into more explanation regarding the period of limitations. So – generally, you’re required to keep records that support an item of income, deduction or credit shown on your tax return until the period of limitations runs out.

The period of limitations means the period of time in which you can amend your tax return (to claim a credit or refund) or the IRS can assess additional tax. The list below shows the period of limitations that apply to income tax returns; the years refer to the period after the return was filed.

Keep records for:

  1. Three years if numbers 4,5, and 6 below do not apply.
  2. Three years from the date you filed your original return, or two years from the date you paid the tax (whichever is later) if you file a claim for credit or refund after you file your return.
  3. Seven years if you file a claim for a loss from worthless securities or bad debt deduction. (Explained above also).
  4. Six years if you do not report income that you should, and it is more than 25 percent of the gross income shown on your return.
  5. Indefinitely, if you do not file a return.
  6. Indefinitely if you file a fraudulent return.
  7. At least four years (for employment tax records) after the date that the tax becomes due or is paid (whichever is later).

Why should I keep tax records around?

Copies of previously filed tax returns are helpful for a number of reasons. They will help you prepare for current-year tax returns and to make computations if a return needs to be amended.

How do I keep my records safe?

No matter if you store your tax records digitally or on paper, they still need to be kept safe and secure. For paper records, the IRS suggests securing them under lock and key – such as a drawer or safe. The IRS also recommends scanning paper tax/financial records into a format that can be encrypted or stored on a flash drive.

If you’re retaining records electronically, they should be backed up and encrypted.

How do I dispose of old records?

It’s no secret your tax records contain sensitive information such as Social Security numbers, income amounts, and bank account information. Just imagine the damage a criminal could do if they got their hands on that!

Once documents are past their useful date, they should be disposed of properly. That means shredding your paper records before disposing and using a special wiping software to remove sensitive data from computers and back-up drives. Simply deleting stored tax files won’t completely erase them.

Want to learn more?

Check out the IRS articles here and here.

Disclaimer: Please note that this is not all inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding specific application of the information to your own plan.