If you claimed a bad security or debt for a loss, how long should you keep tax returns?

Keeping tax returns for an extended period, specifically seven years, is advised in situations where you have claimed a loss on a bad security or debt. This duration aligns with the Internal Revenue Service (IRS) guidelines for maintaining documentation related to losses that may be offset against possible future gains. The IRS recommends retaining records that support income, deductions, and credits for at least three years from the year you file your return, but for claims related to bad debts, a longer retention period of seven years is prudent. This is because the loss may need to be reported in future years or justified if questions arise during audits. Thus, maintaining these documents ensures you have the necessary proof if future tax situations warrant a review of past losses.