Monday 21 February, 2022

How to Organize Taxes: Long-Term Storage Solutions


In a recent post, I talked about how you can use storage bins for documents to help you get organized for tax season. But what do you do with your documents for past years? How long do you need to keep them, and how can you make sure that they stay organized? How Long To […]


In a recent post, I talked about how you can use storage bins for documents to help you get organized for tax season. But what do you do with your documents for past years? How long do you need to keep them, and how can you make sure that they stay organized?

How Long To Store Tax Documents

The key to knowing how long to file tax documents is to understand how audits work.

Generally speaking, the government is most likely to audit you within three years of filing a tax return. Please note that is three years from when you file, not three years of the tax year in question.

So say we are talking about the 2016 tax year, and that you filed on April 18th, 2017. The three-year period starts as of April 18th, 2017, not 2016. The government may audit that year anytime up through April 18th, 2020.

Technically, they can audit you past that year as well, but there is a statute which says that auditors should try to close the file on returns within a three-year period. Auditors that fail to do so are “blowing the statute,” and in some cases may even lose their jobs.

It is not uncommon for audits to extend six years instead of three. And in some cases, they may extend back even further. Most people do not need to worry about an audit going back further than six years, however, so that is how long you should keep your tax documents. Remember, the six-year period starts as of the filing date for any given year (this is why some people refer to it as seven years).

So returning to our example of the 2016 tax year, you probably have escaped an audit if you still have not been contacted as of April 18th, 2023. After that date, you no longer need to keep all those 2016 records—but there is a caveat.

In some situations, you may want to keep your documents longer. If for example you make your money through a business with a high audit risk (like day trading), you may face a more extensive audit. And obviously if there is a year you failed to file or suspect an error on your return (which legally you should report), keeping the records forever is smart.

Best Way to Store Tax Documents

So what can you do with all these documents to protect them? I recommend the same solution you use to keep track of your documents throughout the year—a set of clearly labeled plastic bins with file folders inside. This method is simple, affordable, and efficient.

In fact, you do not even need to remove any of your tax paperwork from those bins after you file—just put them in storage containers in your basement or attic. Keep enough sets that you always have one you can rotate to the current year. They will take up some space, but if the auditor ever comes calling, you will be very grateful you kept all those records in long-term storage.

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