How Long to Keep Important Documents, According to Tax Pros

You're digging through your basement for holiday decorations and stumble across boxes of documents from the last millennium. Can you throw them out?

Companies and governments have document retention policies. Most people don't. Common wisdom says keep important papers for seven years because of something vague about taxes.

For those of us with paper records dating to the Clinton administration, that suggests you can throw them away. But does that mean everything?

Here's what accountants and tax experts have to say on the matter.

Tax Returns

Start with tax returns—the annual document fulfilling your duty to Uncle Sam.

"The IRS can audit you for no reason, or any reason, for three years from the date you filed your return," said Paul Mendelsohn, a CPA in Livingston, New Jersey.

"The IRS has more time" beyond three years "if you pay late, file an amended return, file a fraudulent return or leave out income that is at least 25% of what you reported," he said.

The seven-year rule exists partly because the IRS "typically has up to six years to audit your return if there's a big issue, like unreported income," said Mark Gallegos, a CPA in Chicago. The seventh year "is just a buffer."

But sometimes seven years isn't enough. There's no time limit for going after people who file fraudulent tax returns or no return at all.

"If you never filed a tax return, the statute never starts, so you'd have to keep records indefinitely," said Scott Brillhart, a CPA in Chicago.

Bottom line: Keep tax returns for at least seven years, if not forever.

Tax Supporting Documents

Documents you file with your tax return or use to prepare it—W-2 forms, 1099s, receipts, expense records—"can usually be tossed after seven years," Gallegos said.

Most of us won't need supporting documents for more than three years, Mendelsohn said. At minimum, keep them "for three years from the date you filed your original return, or two years from the date you paid the tax, whichever is later."

Bottom line: Keep supporting tax documents for at least three years, ideally seven.

Bank and Credit Card Statements

Old bank and credit card statements, pay stubs, and other number-heavy documents from financial institutions "can be shredded after a year, unless you are keeping them for tax purposes," Mendelsohn said.

Michelle Crumm, a certified financial planner and tax expert in Ann Arbor, Michigan, advises clients to keep bank and credit card records for a full seven years. "Keep a digital copy if you are worried about never having access again," she said.

Bottom line: Keep bank and credit card statements for at least a year, arguably seven.

Property and Investment Records

Here's an exception to the seven-year rule. Think of it as seven years plus.

If you own a home or another investment asset, the documents "need to stick around while you own the property" and "for at least seven years after you sell it," Gallegos said.

Why? "These records are key for figuring out your cost basis, which impacts how much tax you might owe when you sell."

Cost basis is the original value of an asset calculated for tax purposes. That value helps determine capital gain—the difference between cost basis and current market value.

"Safeguard the deed to your house, title to the car, your mortgage" or car lease or loan "as long as you own the property," Mendelsohn said.

Bottom line: Keep property and investment records while you own the assets and ideally seven years after you sell.

Retirement Account Records

The seven-years-plus rule applies here too. "Hold on to records for your IRA or 401(k) as long as the account is active and for seven years after it's closed," Gallegos said. "They're important for making sure distributions are reported correctly."

Bottom line: Keep retirement account records while the account is open and seven years after closing.

Forever Documents

Crumm lists several records her clients should never throw away: adoption papers, birth certificates, death certificates, divorce decrees, lawsuits, marriage certificates, diplomas and school transcripts, health and immunization records, and Social Security cards.

If you have estate or gift tax records, keep them forever, Gallegos says.

Documents to Keep Until a New One Arrives

Some records are redundant. When you receive a new property tax assessment, it's safe to toss the old one, Crumm said.

Other documents you can shred when you get a new one: credit reports, Social Security statements, and vehicle registrations.

Everything Else

If you have an old document not mentioned above, you're probably safe following the seven-year rule, Mendelsohn said.

Exceptions exist. If you own a business, failed to file a tax return, or get sued, you may wish you'd kept every associated paper. Otherwise, it can probably go.

Did you find this information useful? Feel free to bookmark or to post to your timeline to share with your friends.