Once tax season is over, it’s tempting to contemplate pushing every document into a shredder and going on your way until next year. However, prematurely disposing of your tax documents can have financial consequences because the IRS can audit you up to three years later. Likewise, it’s possible for taxpayers to claim a refund they missed within the last three years. Generally, you should plan on keeping all tax documents for a minimum of three years in case you get audited. Here’s what to know.

If you’re looking for ways to lower your tax liability, a financial advisor can walk you through specific strategies to optimize your portfolio.

The recommended period for keeping federal tax documents varies depending on the type of document and your circumstances. As a general guideline, it’s best to keep federal tax documents for at least three years. The maximum time to keep tax documents is seven years, after which they won’t serve a purpose for filing or receiving a refund.

The three-year timeline comes from the IRS, which advises taxpayers to keep W-2s, 1099s, invoices, donation receipts, property-related documents and investment documents according to the federal statute of limitations.

This rule allows you to claim a refund you were supposed to receive within the last three tax years. If you miss a return, you can submit the relevant forms and paperwork within three years from the filing date to receive the return.

However, three exceptions can extend the three-year limit. First, the IRS has six years to audit a return to collect taxes on income you didn’t report or underestimated. This situation can impact taxpayers with fluctuating incomes, such as business owners, self-employed contractors and investors.

Let’s say you made quarterly tax payments in 2021 that didn’t end up reflecting your total income that year. The IRS can pursue unpaid taxes on this income for the next six years if you underreported your income by more than 25%. As a result, keeping your documents for that long is important.

Business owners have another set of documentation to keep: Employment tax records. If you have workers on the payroll, you should keep all related files and paperwork for four years after the tax is due or you paid it, whichever is later.

In addition, it’s essential to keep documentation for seven years if you claim a loss from worthless securities or a deduction from a bad debt. Doing so ensures your ability to support these claims during an audit.

Lastly, some situations necessitate keeping files forever. Specifically, if you don’t file a return for a particular year, have never filed taxes before, or experience an issue regarding tax fraud, you should keep your documents indefinitely because the statute of limitations doesn’t have an endpoint.