Federal regulations require taxpayers to keep copies of their tax returns and related supporting documents for a minimum of three years. This guideline is often referred to as the “three-year rule,” which leads many taxpayers to assume that retaining records for this period is sufficient.
In certain situations, however, the IRS may review returns from earlier years. If income is substantially underreported, generally by 25 percent or more, or if fraud is suspected, the IRS can examine returns going back up to six years. For added protection, it is recommended that taxpayers retain their records according to the guidelines outlined below.
Keeping a backup of your important records, such as tax returns, bank statements, and insurance documents, is simpler than ever. Many financial institutions now provide electronic statements, making it easy to access and save your information online.
If you receive paper documents, you can scan them and store digital copies instead. Once saved electronically, your records can be backed up to an external hard drive, a labeled USB drive, or another secure storage device for safekeeping.
For added peace of mind, you may also want to consider online backup options. Storing files securely online helps protect your records even in the event of unexpected situations, such as natural disasters, ensuring your information remains accessible and safe.
Although federal rules do not require tax records to be kept permanently, there are many situations where maintaining these documents indefinitely is recommended.