Business Recordkeeping Requirements

The General Rule: Keep Records for 3 Years

The IRS states the core principle plainly: keep records that support an item of income, deduction or credit on a tax return until the period of limitations for that return runs out. For most returns, that period is 3 years from the date you filed. If you're not sure which rule applies to a specific record, 3 years is the floor, not a safe assumption for every document.

When the Period Is Longer

Several situations extend the IRS's retention period well past 3 years:

• 6 years, if you don't report income that you should have reported and it's more than 25% of the gross income shown on your return.
• 7 years, for a claim related to a loss from worthless securities or a bad-debt deduction.
• Indefinitely, if you don't file a return at all, or if you file a fraudulent return.

If you're claiming a refund or credit after you already filed, keep records for 3 years from when you filed or 2 years from when you paid the tax, whichever is later.

Employment Tax Records: 4 Years

Employment tax records follow a separate rule from general income tax records. The IRS requires you to keep employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. This covers records like time sheets, wage payments, and payroll tax deposits, regardless of how long you'd otherwise keep income tax records for the same year.

Property Records: Keep Them Until You Dispose of the Property

Records connected to property, what you paid for it, improvements you made, depreciation you claimed, need to be kept until the period of limitations expires for the year you dispose of the property, per the IRS. That can mean holding onto a record for well over 7 years if you hold the property that long, since the clock doesn't start until you sell or dispose of it.

Keep Filed Returns Permanently

The IRS recommends keeping copies of your actual filed tax returns indefinitely, not just the backup records. They're useful for preparing future returns, responding to a question from the IRS about a prior year, and filing an amended return later.

A Practical Cushion: 7 Years

Because the specific period depends on which exception applies, and because it's not always obvious in the moment which one will matter later, a common practical approach is to keep most business tax records for 7 years rather than trying to sort each document into its exact category. When in doubt about a specific record, check with your accountant or the IRS directly rather than guessing.

Entity-Level Recordkeeping Is a Separate Requirement

Separate from tax records, the state that formed your LLC or corporation sets its own rules for what records the entity must keep and where. California's LLC act, for example, requires an LLC to maintain at its designated office a current list of members, the articles of organization and any amendments, the operating agreement, copies of federal, state and local tax returns for the six most recent fiscal years, financial statements for the six most recent fiscal years, and books and records relating to internal affairs for at least the current and past four fiscal years. Other states set similar, though not identical, requirements; check your own state's LLC or corporation statute for the specific list and retention period that applies to your entity.

Digital Records Are Fine, Kept Properly

The IRS accepts electronic records as long as they're complete, accurate, and can be reproduced in legible form when needed. If you keep records digitally, back them up somewhere separate from your primary system, since losing records to a hardware failure doesn't excuse you from needing them later.

Industry Rules Can Set Their Own Retention Periods

Some industries and professional licenses carry their own recordkeeping rules on top of the IRS and state entity requirements, such as specific retention periods for client files, safety records, or licensing-board documentation. Check with your industry's licensing body or regulator for any period longer than the general rules above.

Sort Records by the Longest Period That Could Apply

A single transaction can touch more than one retention rule at once. A piece of equipment you depreciate might need its purchase and depreciation records kept until well after you dispose of it, long past the usual 3-year window for the tax return in the year you bought it. When a record could fall under more than one rule, keep it for whichever period is longest.

Don't Wait for an Audit to Organize Records

The time to figure out whether you have the receipt, the signed agreement, or the payroll record is before the IRS, a bank, or a court asks for it, not during an audit or a dispute. Build a simple, consistent filing system, digital or physical, and stick to it year over year rather than reconstructing records after the fact.

Entity Records and Tax Records Often Live in Different Places

It's easy to keep tax records with your accountant or bookkeeper while your formation documents, operating agreement, and ownership records sit somewhere else entirely, or nowhere organized at all. Keep both sets current and reasonably accessible, since a bank, an investor, or your own state's filing office can ask for either one.

This Is Not Tax or Legal Advice

Exactly which retention period applies to a specific record, and what your state's entity-level recordkeeping statute requires beyond the general pattern described here, depends on your specific facts. Talk to a tax professional about your retention schedule and a business attorney about your state's entity recordkeeping requirements.