How Long to Keep Tax Records Before Shredding

Most homes have a closet, drawer, or filing cabinet stuffed with old tax returns going back twenty or thirty years. Most of that paper can go. The IRS has clear rules about how long they can come back and ask questions, and once that window closes, the paper has no purpose other than taking up space. Knowing the rules saves room, makes the records you do keep easier to find, and reduces the chance of identity theft from sensitive paper sitting around. The general rule is three years, with several important exceptions that bump the period up to seven years or longer.

The three-year rule comes from the IRS statute of limitations on regular audits. After three years from the date you filed a return or the return was due, whichever is later, the IRS generally cannot audit that return for a routine matter. So a return filed in April 2024 for tax year 2023 is generally safe to discard after April 2027. The supporting receipts, W-2s, 1099s, and bank statements that go with that return follow the same three-year rule. Three years is the floor, not the ceiling. Many tax professionals recommend seven years to be safe.

The seven-year rule applies in three situations. First, if you claimed a loss from a worthless security or a bad debt deduction, keep the records for seven years. Second, if you under-reported your income by more than 25 percent, the IRS has six years to come back, so seven is the safe round number. Third, if you ever filed a claim for a refund of taxes paid, keep the records for seven years from the filing date. For most seniors with simple returns, three years is enough, but seven is a comfortable margin if you have the space.

Three categories of paperwork should be kept much longer or forever. Records related to the purchase, improvement, and sale of a home should be kept for as long as you own the home plus seven years after the sale, because the cost basis of the home affects how much tax you owe when it sells. Records of contributions to retirement accounts that were not deducted should be kept for as long as the account exists, because those contributions come out tax-free in retirement and you must prove the basis. Estate planning documents, wills, trusts, and insurance policies should be kept indefinitely. When you do shred old records, use a cross-cut shredder or take them to a community shred event, often held free at libraries, banks, and senior centers.