How long to keep business tax records
4 min read
As a small business owner, your workspace may be filled with many forms, documents, and files… So much so, you’d probably love to get rid of a few. But, are tax documents one of the things you can get rid of?
How long to keep business tax records is determined by a number of factors, which we’ll outline below. We’ll also share how long to keep business documents central to bookkeeping and payroll, too, as these forms and documents go hand in hand with your small business taxes.
How long to keep tax returns for business
How long to keep tax returns for business depends on a period of limitations. Here are the general rules:
- In most cases, you should keep your tax records for three years, unless these exceptions apply:
- You should keep records for six years if you don’t report income that you should report, and it’s more than 25% of the gross income shown on your tax return.
- You should keep records indefinitely if you don’t file a return.
- You should keep records indefinitely if you file a fraudulent return.
- You should keep records for seven years if you file a claim for a loss from worthless securities or bad debt deduction.
- If you file a claim for a tax credit or refund keep records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.
- Keep employment tax records for at least four years after the date that the tax becomes due or is paid, whichever is later.
Even though you may not be required to keep tax returns for IRS purposes, you might benefit by retaining them for other purposes. For example, a creditor or insurer might require you to keep records of your business income, or you may later need information from an old return when you sell depreciated assets. For more information on depreciation schedules, read our article.
How long you should keep state and local tax records varies depending on state period of limitations.
Prefer to get help from a pro? Block Advisors small business certified tax pros can help you understand what tax documents to keep and be your go-to for all your small business tax needs.
How long do I need to keep business tax records?
We’ve covered how long to keep tax returns, but if you’re wondering how long to keep tax documents, there’s more to consider. Generally, you should keep business records that back up your business’ income, or tax credits or deductions taken until the period of limitations for that tax return runs out.
Simply put, you should keep business documents that pertain to your income, deductions, and credits for the same amount of time as your tax returns discussed above. If you’re wondering what records need to be kept for a small business, here’s a list of important records to save:
- Annual brokerage statements
- Annual reports
- Business bank statements
- Business expense receipts and logs
- Medical and dental benefit statements
- Mortgage statements as they relate to a business
- Proof of charitable contributions and receipts on behalf of a business
- Records of business expenses that resulted in NOLs or capital loss
- Retirement account information
- Tax-reporting statements
How long should a business keep records other than tax documents
As a small business owner, your concern for financial records isn’t limited to taxes, but also payroll and bookkeeping. They are complementary to your tax records. For example, if you’re wondering “how long should a business keep 1099 records?”, you can follow the employment tax record guideline above.
What else should you consider when deciding how long you should keep business records? When your records aren’t needed for tax purposes, that doesn’t mean they are destined for the shred bin. For example, while the IRS doesn’t need these forms, a creditor or insurance company might need them.
Generally, here are examples of some important forms to keep:
- 1099 records
- Absence records
- Accounts payable and receivable
- Articles of incorporation, organization, or other business formation records
- Balance sheets
- Benefits paid to employees
- Cash register tapes
- Deeds, leases, and information on business assets
- Deposit information (cash and credit sales)
- Invoices
- Licenses and permits
- Payroll records
- Petty cash slips for small cash payments
- Profit and loss statements (i.e. income statement)
- State payroll tax receipts
- W-2s and total wages paid
- W-4 forms
Documents: Other factors
Beyond tax and financial rules, the answer to the question of “how long do we have to keep business records?” can be very specific to your business, based on factors such as your industry or legal advice.
More help knowing what tax records need to be kept for a small business
Hopefully, we’ve answered how long to keep business tax records. Want to get input on your specific situation? See how Block Advisors small business certified tax pro can help you.