How long do I have to keep business tax documents?
That’s what everyone is asking, especially as you often use tax records for financing, budgeting and paying your business taxes other times during the year.
You already don’t have a big staff, get pulled in a lot of different directions and the mundane task of organizing your tax documents is the last thing on your mind.
But now that we’ve done the work of positioning you in the best tax situation possible, you’ll need to hang on to your paperwork for a while. Most business owners are not equipped to do everything. We get it. So ideally, you want to delegate this task to others on your team. Here’s our best practice advice, both for you and for a trusted team member:
The TCG Accounting Team’s
“Real World” Business Strategy Note
Keeping Tax Documents: Business Edition
“You’ve got to be on top of your record-keeping. Imagine one day if a major bank is taken down and the records are gone.” – Ross Perot Jr.
The timeframes
The federal tax filing day may be over for some but if you run a small business, you know tax season never really ends.
That starts with documentation. Generally, keep any record that supports any figure on your tax return, such as income, expenses, tax credits or on your tax return deductions. Some examples of this are home-office or meals and entertainment. Keep these until the period of limitations for that tax return runs out. Business tax returns and other tax documents have a statute of limitations, AKA how long the IRS has to question your tax filing, similar to that of personal tax returns and documents:
- Three years from the date you filed your original return or two years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file.
- Six years if you do not report income that you should report and it is more than 25% of the gross income on your return.
- Seven years if you file a claim for a deduction from a loss from bad debt.
- Keep employment tax records at least four years after the date that the tax becomes due or is paid, whichever is later.
- Keep records indefinitely if you don’t file a return or if you file a fraudulent return.
Generally, the higher your income and profits and the more complicated your return, the better it is to keep complete tax backups as long as possible. Keep your state tax documents with your federal ones.
Other documents
Many records can intertwine with the tax records of your company, and you may need to keep these for different lengths of time. Legal documents like deeds, patents and trademark registrations, property appraisals, rental agreements, bills of sale, and ownership records, you keep indefinitely.
Keep all accounting documents and anything bank-related such as account, credit card and investment statements and canceled checks for at least seven years, maybe longer. Check with us regarding your particular circumstances. Keep insurance documents until you replace expired ones.
Regulatory agencies also often have their own retention recommendations. The Occupational Safety and Health Administration, for instance, says to keep records of serious work-related accidents for five years. The U.S. Department of Labor says to keep most payroll records for at least three years. The U.S. Chamber of Commerce says to keep even job advertisements, applications, and resumes on file for at least one year. Other agencies might have retention requirements, too, depending on the state and on your industry. We can help you check.
The same goes for the ever-changing breaks for businesses, such as bonus depreciation and the meals and entertainment deduction — especially get with us on this one if you’re thinking of amending a past return to re-do expense deductions.
How long should you keep your tax returns, themselves? Well, you never know when a given year’s return will come in handy for filling out future returns, or if you decide to amend one someday to try for a past tax break like the Employee Retention Credit. And lenders and other sources of financing may want your return for years to come.
Not to mention, the IRS got a big funding bump last summer as part of the federal Inflation Reduction Act, and has pledged more scrutiny of many taxpayers. Although their focus, they’ve said, is targeting accountability for those in very high tax brackets.
How to store
Keep your tax returns and, for that matter, many of your records for good. It’s never been easier.
The IRS is finally catching up with the private sector in its common use of digital documents. E-documents for your taxes must be clear and identical to the paper original.
Desktop printers can now digitize a document. You can put it on a thumb drive or other external media – which remember could itself be obsolete in a couple of decades – or upload it to a cloud storage service. Some are from household names like Amazon and Google, but others are more geared toward businesses. All come with varying price tags.
When it does come time to toss old tax records, DO NOT just heave them into the dumpster behind the parking lot. That’s treasure for identity thieves. Your shredder is your friend.
Here’s a helpful reference chart:
| How long should you keep business tax records? | Details |
| 2 -3 years |
Three years from the date you filed your original return or two years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return. |
| 4 years |
Employment tax records after the date that the tax becomes due or is paid, whichever is later. |
| 6 years |
If you do not report income that you should report, and it is more than 25% of the gross income shown on your return. |
| 7 years | File a claim for a loss from worthless securities or bad debt deduction. |
| Indefinitely | Do not file a return or filed a fraudulent return. |
| Indefinitely | Seek financing that will require past tax returns.. |
Unless stated otherwise, “years” refers to the time after the return was filed. Returns filed before the due date are treated as filed on the due date.
Your company’s taxes and recordkeeping are key parts of your small business. We’re here to help you at tax time and all year long.
All the best,
The TCG Accounting Team
