How Long Should You Actually Keep Your U S. Business Records?

If you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property. Yes, the IRS accepts digital records as long as they’re accurate, complete, and accessible. Your electronic system must reliably store, retrieve, and reproduce legible records in their original format. These extended retention periods accommodate both U.S. requirements and those of foreign jurisdictions, which often have longer statutes of limitations. Keeping paper records can take up physical space, pose fire/flood risks, and make retrieval time-consuming.

✅ Best Practices for Digital Record Storage

• If you’re unsure what to keep and what to shred, your accountant, lawyer, and state recordkeeping agency may provide guidance.
• Be advised, however, that the IRS can legally go back further if they also believe you to be guilty of fraud or if you’ve also omitted any additional tax documents.
• After you’ve reviewed federal rules and your state’s document retention schedules, you may still have records that you’re unsure about.
• Finally, another pitfall is failing to separate personal and business records, especially for freelancers or small business owners.

If you’re a corporation, you’ll also need to keep any director or shareholder meeting minutes and a stock ledger. Other key ownership and business documents should be kept permanently, including deeds, titles, property records, and any contracts. For Title VII and ADA, the requirements kick in when you have 15 or more employees; it’s 20 or more employees for ADEA. If your company meets these requirements, you’ll need to keep all hiring records for each position for at least one year from the date of the hiring decision. When a document’s retention period is over, disposal must be handled securely to protect sensitive data.

Even if they serve no specific tax purpose, you should keep your bank statements for three to seven years. This allows you to maintain historical records of your company’s finances, which can help make future projections or validate your income. Every small business owner understands the need for careful documentation. For example, the IRS may ask to see these documents to validate your tax returns or deductions. Backing up your physical documents protects your files against loss and damage, improves organization, and streamlines efficiency. Keeping business records isn’t just a best practice, it’s a requirement to back up your tax return claims.

Generally, keep records relating to property until the period of limitations expires for the year in which you dispose of the property. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain how long to keep business records or loss when you sell or otherwise dispose of the property. In short, while paper still has its uses, digital storage has emerged as the smarter, safer, and more efficient choice for most taxpayers.

Situations Requiring Longer Retention of Tax Records

At BILL, we provide business reporting tools that can be used to help plan for tax season, manage cash flow, and analyze every aspect of your company’s performance. These insights can help you refine your strategy and plan for the future, all while ensuring you stay in compliance with tax regulations. Records are essential for verifying tax returns and deductions, and the IRS may request them for audits. As a small business, it’s easy to grow lax with practices like record retention. It’s tempting to push document retention aside, reasoning “I’ll do it later” — only to find that the “later” you promised yourself never arrives.

• Use Patriot’s online accounting for stress-free tracking, secure storage, and more.
• Businesses should establish a consistent filing system, whether physical or digital, that allows for easy retrieval of documents.
• Should you decide to close your business, the time limits listed above will remain in effect.
• For instance, healthcare and financial organizations must meet stringent privacy laws that impact how you store digital documents.

Businesses must act responsibly when it comes time to dispose of records. For physical documents, the recommended methods are shredding or incinerating. Doing so ensures that confidential information, such as social security numbers, bank account details, or proprietary data, does not fall into the wrong hands. Digital records help reduce clutter, protect against physical loss, and make it easier to retrieve important documents when needed.

If you’re unsure what to keep and what to shred, your accountant, lawyer, and state recordkeeping agency may provide guidance. The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out. Keeping these documents longer than the standard three years is wise because they often relate to ongoing deductions, depreciation schedules, or credits that carry over multiple years.

How many years can the IRS go back to audit?

In cases of a fraudulent return or if no return was filed, records should be kept indefinitely, as there is no statute of limitations. Supporting documents include invoices, receipts, proof of deductions, and income statements. The best solution is to follow the IRS timelines for record retention, which vary depending on your situation, and to set a yearly reminder to review your files. A simple habit of scanning documents or using secure cloud storage can help you stay organized without being overwhelmed.

Legal and Corporate Records

Lastly, keep in mind that you’ll need to keep originals for important documentation. These are things like articles of incorporation, business licenses, partnership agreements, and any signed contracts. Be sure to check the terms of each account to see how long they keep historical records. If it’s shorter than 7 years, you may need to download and save an annual statement in order to have it on hand for tax recording.

While IRS guidelines focus primarily on tax-related documentation, small business owners also need to retain a wide range of records for legal, financial, and operational purposes. The type of document—whether it’s related to payroll, contracts, or customer transactions—often determines how long it should be kept. Understanding these distinctions helps ensure you’re prepared not just for tax audits, but also for HR reviews, legal disputes, or insurance claims. Regulatory compliance is a significant driver, with federal agencies, such as the Internal Revenue Service (IRS), setting minimum retention periods for various financial and tax-related documents. These mandates ensure businesses can substantiate reported income, expenses, and deductions. Industry-specific regulations may impose additional or longer retention requirements, reflecting unique demands within particular sectors.

Better recordkeeping with Patriot Accounting™

Protecting and proving that you own your intellectual property is a necessary step in protecting your business against legal action. These laws are designed to protect workers against discrimination and unfair hiring practices. To comply, you’ll need to keep hiring records on each position for at least one year from the date you made your hiring decision. Check with your accountant, state, insurance company, or the IRS if you have questions about recordkeeping duration.

Retaining detailed payroll records makes it easier to address any wage disputes and satisfies your obligations to the IRS and other regulatory agencies if an audit is performed on your business. This law is imposed under the Fair Labor Standards Act (FLSA) and IRS guidelines. Additionally, some of your operational records might be classified as legal documents, which are necessary to demonstrate ownership of your business or provide details about your legal structure.

That’s why it’s important to create a business-wide Standard Operating Procedure that all necessary employees learn as part of the onboarding process. You don’t want to be dependent on one employee for important document storage. Just like your services and marketing activities may have Standard Operating Procedures (SOPs), your internal document filing process needs its own SOP. In this SOP, you’ll need to outline how and where important documents will be saved. Knowing exactly where those documents are filed will make your life a lot easier when it comes time for planning your exit.