Shred it or keep it? How long to keep tax records

The records table

The clock usually starts on the date you filed, or the April due date if you filed early.

What it is	How long	Why
W-2s, 1099s, receipts and statements behind a normal return	3 years	The IRS generally has three years to assess more tax, and you have three years to claim a refund.
Records for a year where income was left off by more than 25%	6 years	The assessment window doubles when income is substantially underreported.
Records for a worthless security or bad debt deduction	7 years	These claims have a longer window of their own.
Payroll and employment tax records, if you have employees	At least 4 years	Measured from when the tax was due or paid, whichever is later.
Home purchase, improvements, stock and other property basis records	Until 3 years after you sell	They prove what you paid, which sets your gain when you sell.
Anything for a year you didn't file, or a fraudulent return	Indefinitely	The clock never starts.

Keep the returns themselves

The table covers the paper behind a return. The return is different. We keep recommending you hold on to the returns themselves, long after the receipts are gone. They show carryovers (capital losses, charitable contributions, depreciation), prove income for a mortgage, and help us rebuild a year if the IRS or Indiana ever asks. Once scanned, they take up no space at all.

The kitchen remodel receipt from 2014 isn't clutter. It's part of what you paid for the house.

The house is the one people get wrong

Most homeowners can exclude up to $250,000 of gain ($500,000 for married couples) when they sell a main home they've lived in for two of the last five years. That covers a lot. But in a long-held house, or a rental, or a home partly used for business, the improvements you made over the years are what shrink the gain. Closing statements, contractor invoices for the roof, the addition, the new furnace: keep all of it in one folder until three years after you sell.

Digital copies count

The IRS accepts scanned and electronic records as long as they're legible and complete. A phone scan saved to a folder named by year works. Back it up somewhere other than the phone.