A question I hear a lot from business owners: how long do I actually have to keep all this paperwork? It’s a fair question. Receipts multiply when nobody’s looking, and nobody wants to pay for a storage unit full of old gas station slips.
Here’s the short answer first, then the details that matter.
The general rule: three years
For income tax purposes, the IRS generally says to keep your records for 3 years from the date you filed the return. If you later file a claim for a credit or refund, keep them for 3 years from when you filed the original return or 2 years from when you paid the tax, whichever is later.
So for most owners, in most years, three years is the baseline. A few situations stretch it.
When to keep records longer
The IRS lists several exceptions worth knowing (you can see the IRS’s full list):
- Employment tax records: at least 4 years after the tax is due or paid, whichever is later. If you have employees, this one is yours.
- Unreported income: 6 years if you left out income that’s more than 25% of the gross income shown on your return.
- Bad debts or worthless securities: 7 years if you claim a loss for either one.
- No return filed, or a fraudulent return: keep records indefinitely.
There’s one more that trips people up: property and equipment. Keep the records for vehicles, equipment, and buildings until the period of limitations runs out for the year you sell or otherwise get rid of the asset. That receipt for the truck you bought years ago still matters, because it’s how you figure depreciation along the way and your gain or loss when you sell.
Don’t forget your state
The IRS isn’t the only one who can ask to see your records. If your state collects income tax, sales tax, or payroll taxes from your business, it generally has its own record-keeping rules, and they don’t always match the federal ones. Sometimes they run longer.
Here in Missouri, for example, state law (Section 144.320, RSMo) says sales and use tax records should be kept for at least three years, and the Missouri Department of Revenue recommends keeping them for five years, or as long as necessary to prove you don’t owe anything for a period under audit. The Department gives the same guidance for corporate tax records.
Wherever you do business, check your state revenue department’s guidance, especially for sales tax and payroll. When the state’s timeline is longer than the IRS’s, the longer one is the one to follow.
Before you fire up the shredder
The IRS itself points out that taxes aren’t the only reason to keep records. Your lender or insurance company may want them kept longer, so check with them before you toss anything. Having been on the owner’s side of the desk myself, I know paperwork is never the fun part of the job, so here are a few habits that make it easier:
- Label by year. One folder or box per tax year makes it obvious what’s past its date.
- File asset records with the asset, not with the year you bought it, so they don’t get shredded too early.
- Hang on to copies of the filed returns themselves. They take up little space and come in handy for all sorts of things.
- Paper or digital, make sure you can find and read what you kept. A receipt that has faded to blank doesn’t help anyone.
This is general information, not advice for your specific situation. If something unusual is going on, ask before you shred.
As for the shoebox of receipts from 2014? It has probably earned its retirement. If you’d like a hand sorting out what to keep, book a free 30-minute consultation.