How Long Should Small Businesses Keep Their Records?

As a small business owner, managing paperwork can feel overwhelming—but knowing how long to keep your records is essential for staying compliant and protecting your business. The IRS provides clear guidelines on record retention, which vary depending on the type of document and the circumstances surrounding it.

IRS Guidelines for Record Retention

According to the IRS, the length of time you should keep a document depends on the action, expense, or event it records. Here are the key timelines:

• 3 Years: Keep records for three years if none of the exceptions below apply.

• 3 Years from Filing or 2 Years from Payment: If you file a claim for a refund after filing your return.

• 6 Years: If you underreport income by more than 25% of the gross income shown on your return.

• 7 Years: If you file a claim for a loss from worthless securities or a bad debt deduction.

• Indefinitely: If you don’t file a return or file a fraudulent one.

• Employment Tax Records: Retain for at least four years after the tax becomes due or is paid.

Additionally, if your records relate to property (e.g., depreciation or sale), keep them until the period of limitations expires for the year in which you dispose of the property.

For more details, visit the IRS’s official page: How Long Should I Keep Records?

Beyond Tax Records: Other Important Business Documents

While tax-related documents have specific retention rules, other business documents also require careful management. These include:

• Business Formation Documents (e.g., Articles of Incorporation)

• Licenses & Permits

• Contracts & Agreements

• Payroll & HR Records

• Financial Statements

Some documents, like business formation papers and ownership agreements, should be kept permanently. Others, such as payroll records, typically need to be retained for three to five years.

To stay organized, consider using a document checklist like the one provided by Fit Small Business: Business Documents You Must Have & Update Regularly

Final Tip

Always consult with your accountant or legal advisor to tailor your recordkeeping practices to your specific business needs. Proper documentation not only ensures compliance but also supports your business’s growth and resilience. If you have any questions about how this applies to your situation, please contact us.