How Long Should a Business Keep Records?

The Standard Rule: 3 Years

Per the IRS, you should keep records for 3 years if none of the longer-retention situations below apply to you. This 3-year window lines up with the general period of limitations the IRS has to assess additional tax or for you to amend a return to claim a credit or refund, and it covers most everyday income, deduction and credit documentation: invoices, receipts, bank statements, and the returns themselves.

3 Years From Filing or 2 Years From Payment, Whichever Is Later

If you file a claim for a credit or refund after you've already filed your original return, keep those records for 3 years from the date you filed the original return, or 2 years from the date you paid the tax, whichever is later. This situation comes up when you amend a return well after your original filing.

6 Years for Substantially Underreported Income

The IRS extends its own period of limitations, and the retention period that goes with it, to 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. If there's any chance a return understated income by that much, keep the underlying records for 6 years rather than the standard 3.

7 Years for Worthless Securities or Bad Debt

If you file a claim for a loss from worthless securities or a bad debt deduction, keep the records supporting that claim for 7 years. This is a narrower rule than the general 6-year underreporting rule and applies specifically to these two kinds of losses.

4 Years for Employment Tax Records

If your business has employees, keep employment tax records, including payroll records, for at least 4 years after the date the tax becomes due or is paid, whichever is later, per the IRS. This retention period is specific to employment tax and runs separately from the retention periods that apply to your income tax records.

Indefinitely in Two Specific Situations

The IRS says to keep records indefinitely in two cases: if you don't file a return at all, or if you file a fraudulent return. In both situations there's no time limit on when the IRS can assess tax, so there's effectively no point at which the underlying records become safe to discard.

Property Records: Keep Them Until You've Disposed of the Property, Plus the Limitations Period

Records related to property, such as the purchase price of equipment, a building, or other business assets, need to be kept longer than the year of purchase. Keep them until the period of limitations expires for the year you dispose of the property, since you'll need that information to figure any depreciation, amortization, or depletion deduction, and to figure the gain or loss when you eventually sell or dispose of it.

What to Keep Beyond the IRS Minimum

The IRS's retention periods are about your federal tax exposure, not necessarily every reason you might need a document. Corporate formation documents, your operating agreement or bylaws, and your ownership ledger generally belong in your records indefinitely, for as long as the business exists, since they're not tied to a tax period at all. Contracts, leases and insurance policies are often worth keeping for several years after they expire, since a dispute or claim can arise well after a contract ends.

State Rules Can Differ From the IRS Timeline

Some states apply their own, sometimes longer, statute of limitations for state tax assessments or for enforcing a contract. Check your state's requirements separately rather than assuming the IRS's federal retention periods cover every obligation you have.

Digital Storage Is Generally Acceptable

The IRS doesn't require paper originals for most records; scanned or digital copies that are complete, accurate, and accessible when needed are generally sufficient. Keep backups, since a records request during an audit assumes the records still exist and are readable.

Don't Discard Records the Day a Period Technically Ends

Building in some buffer beyond the minimum retention period is common practice, since an audit or dispute that starts near the end of a limitations period can still require records from just before that date. Many businesses keep an extra year beyond the IRS minimum as a cushion.

This Is Not Tax Advice

Which retention period applies to a specific document depends on the facts of your situation, including whether any of the longer-retention triggers apply. Talk to a tax professional about your specific recordkeeping obligations, especially if you've ever amended a return, had a dispute with the IRS, or aren't sure whether a return was fully accurate.