How Long to Keep Tax Records for Your Tax Clients

It’s one of the most common questions tax professionals are asked: “How long should I keep tax records?” Here’s what you should know to give your clients the best and most-up-to date information on how long they should retain their records.

Most records: 3 Years

In most tax situations, the period of limitations for the IRS to assess a tax return is three years, so taxpayers should keep their records for at least three years from the time the tax return was due. This is assuming that your clients have paid their taxes on time and have never failed to file a return or filed a fraudulent return. If they have, they’ll need to keep their records longer.

Unreported income: 6 Years

If a client fails to report all of their income and that income is 25% or more of the amount of income shown on the return, they should keep those records for six years. In this situation, the IRS may assess their return up to six later. The better choice, of course, is to always accurately report all of their income.

Employment tax records (for business owners): 4 Years

If your client owns a business with employees, they’ll need to keep their employment tax records for at least four years.

Filing claims for certain losses: 7 Years

If your clients file a claim for a loss due to worthless securities or bad debt deduction, they should keep those records for seven years.

Unfiled returns and fraudulent returns: Indefinitely

If your clients did not file a tax return or filed a fraudulent tax return, they could be subject to an audit or investigation at any time and should keep those records indefinitely. Of course, you’ll want to advise your clients to avoid this situation in the first place by filing accurate tax returns each year.

What tax records do they need to keep?

Clients may also ask you exactly which records they need to keep. The answer varies according to each client’s tax situation, but in general, they should keep: 

  • Any IRS documents such as W-2s, 1099s, 1095s, and other forms
  • A copy of their filed return and any documents that were included with it
  • Receipts and other records of itemized deductions

Business owners and the self employed will need to keep more extensive records of all business expenses and income. Ideally, their records will be organized in a thorough bookkeeping system with virtual copies of all receipts and documents. For more answers to common (and non-so-common)  tax questions, be sure to keep up with our Tax Tips series.