As a general “rule of thumb”, 3 years is all you need to keep copies of tax returns and related tax documents. The IRS has a 3-year statute of limitations – meaning they generally will not go back more than 3 years to audit your tax returns, assuming the tax returns were timely filed, including extensions.
- if the IRS finds a significant understatement of income being reported by a taxpayer (under reporting income in excess of 25% of the amount reported on the original tax return), then the 3-year statute becomes a 6-year look back period.
- in the case the IRS finds fraud, there is no time limit.
Although 3 years is generally a “safe bet” for retention of past years tax returns and tax documents, for taxpayers looking to be a bit more cautious, a 6-7 year holding period may be a more conservative time frame.
If storage space available for maintaining paper copies of your tax documents and other records in your residence is an issue, the IRS accepts digitally stored records and tax documents. As long as your records are accurate and readable, documents stored digitally are permissible by the IRS if ever needed.
For more tips on retaining documents for tax purposes, please look at the MA Society of CPAs Record Retention Guide.