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Records

How long to keep business records: what the IRS says, and what else to consider.

Every small business owner eventually opens a closet full of banker's boxes and wonders what can go. The honest answer is that it depends on what the record is, what it supports, and which agency or contract might ask for it.

This article summarizes the general periods the IRS describes in its own guidance, adds a few other common categories, and suggests ways to organize records so that keeping them is not the same as losing them. It is general information. Your CPA, enrolled agent or attorney can tell you what applies to your situation and your state.

The IRS starting point

The IRS ties record retention to the period of limitations: the time during which you can amend a return to claim a credit or refund, or the IRS can assess additional tax. Its guidance, including Publication 583 on starting a business and keeping records, describes these general periods.

SituationGeneral period described by the IRS
Most returns, where none of the situations below apply3 years from the date you filed
You file a claim for credit or refund after filing3 years from filing, or 2 years from paying the tax, whichever is later
You claim a loss from worthless securities or a bad debt deduction7 years
You did not report income that should have been reported, and it is more than 25% of the gross income shown6 years
Employment tax recordsAt least 4 years after the tax is due or paid, whichever is later
You did not file a return, or filed a fraudulent oneKeep records indefinitely

Records about property, such as purchase documents and improvement receipts for a building or equipment, are generally kept until the period of limitations expires for the year in which you dispose of the property, because they are needed to work out depreciation and gain or loss. That can mean decades for real estate.

These are the IRS's general rules. A return under examination, a pending claim, or a carryforward of losses or credits can extend how long particular records matter. Ask your tax professional before discarding anything connected to an open year or a carried amount.

Other records with their own clocks

Tax is only one reason to keep a document. Several other categories have their own expectations.

  • Employment: federal wage and hour rules require payroll records to be kept for a set period, and Form I-9 must generally be kept for three years after the date of hire or one year after employment ends, whichever is later. State rules may add to these.
  • Corporate records: articles of incorporation, bylaws or operating agreements, board and shareholder minutes, stock ledgers and cap tables are usually kept for the life of the company.
  • Contracts: keep signed agreements at least for their term plus the time in which a claim could be brought, which varies by state and by type of contract.
  • Insurance: policies and claim files are often kept well beyond expiry, because some claims surface years later.
  • Industry rules: regulated businesses may have specific retention requirements from their regulators or licensing bodies.

Contracts with customers, lenders and investors can also set retention or destruction obligations of their own. A loan agreement or a client engagement letter may say exactly how long you must keep certain files, or when you must return or destroy them.

Keeping records you can actually find

Retention is only half the job. A record you cannot locate when an IRS examiner, a buyer's accountant or opposing counsel asks for it is not much better than one you threw away. A little structure at the time you file things pays off later.

  1. Organize by year and by category, so a request for 2023 payroll leads to one place.
  2. Use consistent file names that include the date and a short description.
  3. Record the date a record can be reviewed for disposal, rather than relying on memory.
  4. Keep originals of anything you may need to show unaltered, and scan paper so it can be searched.
  5. Review once a year and dispose of records whose period has passed, with your advisor's agreement.

The IRS accepts electronic records in many circumstances and has published guidance on electronic storage systems, including Revenue Procedure 97-22. If you plan to scan paper and destroy the originals, check the requirements with your CPA first.

Where a data room helps

A data room is not an archive system, but it is a good way to hand a slice of your records to someone who needs them, such as an examiner, an auditor or a buyer, without sending a stack of attachments.

In ShareAndGo, you can drag in a folder of records and keep its structure. Text inside documents, including scanned pages, is read so search can find a phrase on any page, with highlighted snippets. Recipients confirm their email address with a six-digit code, groups limit which folders each person sees, and view-only access shows PDFs and Office files as watermarked renders without sending the originals to the viewer's browser. An audit log records what was viewed and downloaded, and you can export the room with its folder structure and a document index at the end.

Common questions

Is three years always enough for tax records?
No. Three years is the general period, but longer periods apply in several situations, and some records, such as property basis records, matter for much longer. Confirm with your tax professional.
Do state tax agencies follow the same periods?
Not always. States set their own periods of limitations, and some are longer than the federal period. Ask your CPA about the states where you file.
Can I throw away paper once it is scanned?
Often, but check the IRS guidance on electronic records and any other rules that apply to the record before destroying originals.

Read next

Keeping business records in the cloud

What to check before your records move online.

Preparing for an IRS examination

How a data room helps when the IRS asks for documents.

Year-end document collection

Gathering the year's records in one organized place.