How to store your tax returns

Tax Day is just a week from now, and hopefully you followed Matt’s advice and have already mailed in your forms to the government. If you haven’t, well, get to it!

Now is the perfect time to get your filing cabinet ready for your next round of returns. Since you should actually KEEP your tax returns and associated financial documentation, you want to have a systematized method for organizing these papers. Why keep them? First of all, if you ever get audited, you’ll really want them. Secondly, in case of your death, these documents may be needed in the settling of your estate. Whatever the situation, you’ll need these in paper form and not digital scans.

Any returns older than 10 years can be grouped by decade. I’ve been paying income taxes for about 20 years, so I have a 1980s file and a 1990s file. Then, I have 10 working files for the most recent 10-year period. These are labeled “Tax Year 0″ through “Tax Year 9.” Papers for the year 1999 are still in the Tax Year 9 folder, and they will remain there until 2009′s returns are ready for the file. This year’s taxes were filed in the Tax Year 8 folder, and the 1998 files were moved to the 1990s decade file.

In theory, you could get by with only decade folders. However, I have found that often when my tax documents are requested that they’re for specific years. In these cases, it has been extremely convenient to just reach in and grab the exact file. These requests tend to happen the most often with documents from the last 10-year period.

Here’s hoping that you get a nicely organized filing cabinet and a big return from the government this year!

41 Comments for “How to store your tax returns”

  1. posted by Melissa A. on

    I’ve only been filing for 10 years so I just have a folder for each year. I even have ’08 already set up so I can put things in there as they come in. I thought you only had to keep tax stuff for 7 years though? Maybe that’s just in Canada.

  2. posted by Write-Off on

    I scan them to PDF and email them to myself as well.

  3. posted by Michael on

    Yeah, I thought only 7 years was required by law. I can’t imagine why I (or the IRS) would need something from over 10 years ago.

    I keep PDFs of all my returns with my digital archive of important documents that don’t need to be hard-copies.

  4. Avatar of Erin Doland

    posted by Erin Doland on

    @Melissa — The way I decide what can go and stay at the 10-year mark is this: If it came from the government or was prepared for the government, keep it.

    I don’t keep the other extraneous stuff after 10 years.

  5. posted by Caro on

    In Canada you only have to keep them for 7 years.

    I store each one in a kraft envelope meant for 8-1/2″x11″ (letter) paper so that all the small receipts won’t go missing. After I get my assessment and input it into my new tax forms I seal it all up. (We get our 2007 assessment with our refund cheque. I keep it in my 2008 folder until it’s time to file for 2008. Once that information is entered into the software, I’ll seal it into my 2007 envelope).

  6. posted by Jen on

    Beautiful system for filing taxes — I love it! Thanks Erin.

  7. posted by Suzyn on

    Uh-oh – I’ve been shredding EVERYTHING after 7 or 8 years.

  8. posted by Amy Addison on

    In theory, you could get by with only decade folders.

    At the end of each year, after the taxes are filed, I put all the paperwork (returns, receipts, my spreadsheets, &c) into a manila envelope with the year written in marker on the front. This way, I only need decade storage and tax information from any particular year is EASILY accessible (and tightly stored in a closed envelope).

    For collecting receipts and other paperwork throughout the year, I have ONE of those box-type folders (the kind with sides–so small receipts don’t go missing) hanging in the front of the file drawer. It’s labeled “Current Year Taxes”. It’s where everything hangs out until it’s ready to go into the envelope after I’ve filed.

  9. posted by carolyne on

    Here is the catch. If the government says you only have to keep 7 years and you shred year 8 and older, they cannot ever hold that against you. You are following their rules.
    HOWEVER..

    if you do keep years 8 and older and you are audited and there is something in there which is bad for you, they can use it against you.

    It is always safer and better and less cluttered to follow the government rules and get rid of all documents when their officially required retention period is reached.

  10. posted by Mikey on

    The Motley Fool has a good article on which records to keep, for how long, and why at
    http://www.fool.com/taxes/2000/taxes000623.htm

  11. Avatar of Erin Doland

    posted by Erin Doland on

    @Mikey — We consulted with the Motley Fool article when we put together this article (and a number of other sources, too)! As I said earlier, if it comes from the government or was prepared for the government, keep it. That’s what the Motley Fool article says, too.

  12. posted by Deborah on

    Go to the IRS website for the “real” information about how long to keep tax-related records. Ten years is not accurate for every situation.

  13. Avatar of Erin Doland

    posted by Erin Doland on

    @Deborah — We don’t recommend getting rid of them at 10 years, we recommend keeping them forever but organizing them by decade:

    “Since you should actually KEEP your tax returns and associated financial documentation, you want to have a systematized method for organizing these papers. Why keep them? First of all, if you ever get audited, you’ll really want them. Secondly, in case of your death, these documents may be needed in the settling of your estate. Whatever the situation, you’ll need these in paper form and not digital scans.

    Any returns older than 10 years can be grouped by decade.”

  14. posted by Chris on

    Erin, you don’t explain why they’re needed in paper form instead of digitally. Motley Fool says computer data won’t be trusted, but it’s easy to manipulate what appear to be “originals” and simply print them out. Can you make a compelling case for paper vs. PDF?

  15. posted by Kristin on

    Yes, that’s what I want to know. Can’t we just save them in .pdf and be done with it?

  16. Avatar of Erin Doland

    posted by Erin Doland on

    @Chris — The way it was explained to me by a tax accountant was that the IRS hasn’t caught up with current technologies. One day, a PDF might be fine, but right now it’s not.

  17. posted by Awurrlu on

    Deborah alluded to this above. Here’s a link to my favorite IRS publication, Publication 552 (4/2005), Recordkeeping for Individuals:

    http://www.irs.gov/publications/p552/index.html

  18. posted by adora on

    Actually, you only need to keep 6 years of personal income tax records in Canada. http://www.cra-arc.gc.ca/tax/i.....enu-e.html
    It might be new, since most people I talked to still says 7 years.

  19. posted by penguinlady on

    When we moved from the US to Canada, we had to have data going back to when we were 18 (both my hubby and I): records of employment and address, as well as our car insurance/driving records. Because I held on to that paperwork for 10 years, we had all of that. (Also, we got through the permanent residency process in a record time for his company!)

    If you don’t move around a lot, keep the same job for a long time, or plan to never move out of the country, you’re probably okay keeping records for a shorter period of time. In our case, having the paperwork (organized, of course!) was a Godsend.

  20. posted by Debbie M on

    I keep my forms and supporting papers paperclipped together and slid into the tax booklet. (Yes, I am one of those people who still gets the booklet in the mail and fills out the form by hand.) (And no, I have never owned the type of business that requires a big pile of receipts.)

    Then I keep the booklets in a box (which would hold about ten years worth).

    I like this method because the booklets have all my notes on how I decided what to put in the different blanks. This could help in the event of an audit of course, but also helps me when I’m doing my taxes because after I figure them out I can compare my results to those for earlier years to double-check my work.

    As far as the storage goes, I always thought you had to save everything for 7 years unless you are defrauding the government, in which case you have to save them forever. Well, I am not defrauding the government, but of course what they really mean is that you’ll need your records to defend yourself if you ever become suspected of defrauding the government, which I figure could happen to anyone.

    Also, if you keep your stocks or bonds, etc. for more than 7 years, you need to keep your records of when and for how much you bought them so you can figure what owe later after you sell them.

  21. posted by Alex on

    I have done my taxes on Turbotax since I turned 16. For the last 5 years, I don’t ever print out a copy of the document. i just print to a PDF when I print it. I file electronically. So if I am ever informed that I am being audited, I will just print all of those pdfs out.

    I keep all the accompianing documents in paper form in my filing cabinet. Actually, that, medical and insurance is the only paper I keep. Everything else is scanned to PDF, or paid digitally and printed straight to PDF.

  22. posted by John of Indiana on

    I have filed on-line for as long as it has been offered. I still print paper copies, but also save the .PDF to a diskette. Then it’s into the fireproof box with everything. I had been mulling over not printing paper anymore, thinking that if the hammer falls and they want me to PROVE I’m still eligible to file 1040-EZ at my age, I’ll print them as needed.

  23. posted by Heather on

    I’m confused about this. I just started scanning my tax documents in today to get rid of some of the clutter–and now you’re telling me I need paper copies.

    The problem is that I’m self-employed and so my files for each year are huge. I can’t imagine having the storage space just for 10 years of tax documents. I won’t have room for anything else! Is there anything I can scan? I feel overwhelmed with the prospect of keeping this stuff forever. I want to get rid of what I can.

    Help?

  24. posted by indigo on

    This is the first time I’ve ever heard of keeping all your tax returns forever!

    I asked the person who does my taxes, & she said keep tax returns for 5 years “after the last time you touched it.” So, if you don’t get audited, shred after 5 years. If, for example, you got audited in 2003 for tax year 2001, then you have to wait until 2008 to shred 2001. Also if you file late, you wait 5 years since you filed.

  25. Avatar of Erin Doland

    posted by Erin Doland on

    @Harris and others — It’s not just about being audited. If you die, your heirs will want all of your stock, dividend, and mortgage information, etc., to help in the settling of your estate. All of this information has to be prepared for the government for taxes, but it’s also good to have for other reasons.

  26. posted by Cyphase on

    I don’t keep any tax records. It’s really easy when you don’t pay taxes.

  27. posted by indigo on

    I went & found the IRS page about it. Of course it’s complicated & not terribly clear: http://www.irs.gov/businesses/small/article/0,,id=98513,00.html

  28. posted by Anna on

    I’m still confused about this pdf issue. I used H&R Block’s free online tax prep for the last two years. In the final step, it creates a pdf which you print and then send to the IRS. I don’t see how it would be any different to print that pdf 5 years from now if I needed another copy, since it’s the same format I’ve already successfully submitted.

  29. Avatar of Erin Doland

    posted by Erin Doland on

    @Anna — I think that you’re referring to the eFile 1040, but that’s not the document we’re referring to (at least it’s not the one I’ve been referring to). I’ve been talking about the regular 1040 and the accompanying documents for dividends, investments, etc. If you eFile, then you won’t have anything but a PDF and a print copy if you chose to print it.

  30. posted by Kyle on

    I really doubt everyone needs to do this. My taxes have always been very simple – no itemized deductions, no estate stuff, very little in the way of investments (one simple IRA which is now closed). I see no reason for me, in my current situation, to keep paper copies of anything – I even scan and shred my W2s. Seeing as some companies can provide a digital copy of your W2, one must be able to provide that if audited. What happens to people who have a house fire, flood, or other catastrophe and lose all their records? Will they be thrown in jail for not having the original paper copies of everything? The whole thing strikes me as a bit fear-mongering. Decide for yourself, based on your unique situation, how far back (if at all) to keep paper records – taxes and others.

  31. posted by Jay on

    Whatever records you are keeping, I would worry more about keeping records that the IRS does not already have — records showing purchases and sales of individual stocks, receipts or proofs of payments supporting Schedule C deductions, etc. The IRS already has your tax returns, W-2s, and 1099 forms.

  32. posted by A.M.B.A. on

    I’ve filed a tax return for over 30 years now. I have a paper copy and supporting documents for each year. How much room does it take up? Three or four file folders at most. I obviously agree to hold them forever.

    A.M.B.A.

  33. posted by Melissa A. on

    @adora: I always think of it as 6 years + the current year. That’s how records managers deal with financial records, at least in government (I’ve worked at two levels and we always keep financial for 7). Makes sense to me, but 6 or 7 is probably a good minimum.

  34. posted by Jared on

    I am a tax auditor for state taxes and you would be surprised at the number of returns that end up as audits for non-filing. Most of the time this happens because of an e-file error or simply because the taxpayer forgot to submit the state return. This happens both with returns filed by accountants and individuals. According to the IRS there is no statute of limitations for a non-filer. see http://www.irs.gov/publication.....tml#d0e617 So if the IRS has the right and authority by law to audit you on the year you turned 16 because you didn’t file a return even if you are 85. My vote is to keep forever. It really doesn’t take up much room. I have two desk drawers that have tax info and I’ve only been filing under 15 years.

  35. posted by Rhetor on

    Throughout the year, I toss in/sort receipts, info, etc that will be needed for filling out the tax form into an expanding file folder. Once I’ve gotten all the paperwork done, the file folder is labeled, bundled up, and tossed into the back of the closet. All paperwork in one place, easily labeled, and it takes up minimal space.

  36. posted by Todd on

    Since 2000 (1999 I did a poor job of it) I’ve been saving the 1040 forms in pdf. So far I’ve been holding on to all the tax related forms since then only because it doesn’t take up much space.

    What I plan on eventually doing is scanning the related documents like w-2′s and such, backing them up everywhere and shredding the documents. So if I did need it I can just print out what I have scanned.

  37. posted by Dave on

    You only need to keep your tax returns for 7 years and that is because that is how far back the IRS is willing to go to audit you not because it is a law. I like to live life on the edge so I only keep mine for 3 years. Sure saves a lot of space and time.

  38. posted by CanadianKate on

    I’ve surfed into here from Simple Dollar and am fascinated with all the issues raised here. Here’s the one idea I haven’t seen raised.

    Our non-important records are in boxes labeled Shred When Dead. The kids know there is no need to even open the box. And if we have to move before we die, we know we don’t have to deal with those boxes either.

    We have almost unlimited storage (and run our own businesses) so save everything, but after clearing out my in-laws (who ran their own business) and my parents’ (who tossed nothing) estates, I realized that making things easier for one’s executor is important.

    In times of emotion, adding a dozen file boxes for the children to look over and make decisions about is unfair. If they hire someone to act as executor, it will be expensive.

    The last 10 years of tax records (and all stock records except for stocks that have been sold) are in the filing cabinet. But anything that I’m keeping only for ‘interest’ or ‘just in case’ is in well labeled file boxes.

    As for storing the records that you are saving only for the government when you don’t have lots of storage room…

    Remember these aren’t current files so they can be well under your bed (my bed has drawers underneath but there is a space in the centre of the bed that the drawers runners don’t use) or turned into end tables (build/find large wooden boxes and put the records inside and pop a lamp on top.)

  39. posted by Alfonzo on

    You dont need to keep ‘decades’ of your tax return. Just what the government wants. Any more than your 7 or 8 years means you are verging on hoarding. Like people who hold onto newspapers from the year 1992. :)

  40. posted by Andrew on

    What happens if they try to audit you and you simply don’t have the information?

  41. posted by Ernie Svenson on

    Paper records are NOT required by the IRS!!! Here is a link to some articles that discuss the permissibility of scanning and keeping electronic records: http://tinyurl.com/67totb

    Read IRS Rev Proc. 97-22, which explains what is required from an electronic storage system:http://tinyurl.com/5p3cys

    Again, so that people won’t be confused by the surfeit of misinformation posted in teh article and in the ensuing comments, SCANNING IS PERMISSIBLE.

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