How long to keep tax returns is one of the most asked questions in personal finance.Did you know the average American spends 13 hours every year preparing federal tax returns? For small business owners, that figure almost doubles to 24 hours!
It’s always a relief once taxes are filed for the year. But what do you do with all the paperwork afterward? How long should you keep your tax returns and records?
For most people, three years is a good time frame, but it could be much longer in many situations. Plus, it can often be a good idea to hold onto records longer than the required time for other non-tax reasons.
What is the Period of Limitations?First, let’s start with some definitions. As always, the IRS has some slightly confusing terminology around how to measure the amount of time you should keep tax returns.
According to the IRS, the period of limitations is the “period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax.”