What Records a Small Business Keeps and for How Long

The honest answer to “how long do I keep this” is a list, and the list has more than one number in it. I have kept business records myself, and this post is built from the IRS and New York pages instead, each linked where I use it, with a clear note on where they stop.

How Long To Keep Tax Records?, REH CPA on YouTube

Nothing here is advice for your particular business. Retention rules attach to the kind of record, the kind of tax and, in some cases, the kind of industry, and I am not an accountant or an attorney. Take the list below to one before you shred anything you cannot replace.

What counts as a record

Hands sorting paper receipts into an accordion file by year

Start with the documents behind the books

The IRS page on recordkeeping says you may choose any recordkeeping system suited to your business that clearly shows your income and expenses, and that the type of business you are in affects which records you need. It describes the supporting documents behind the books as the documents created by purchases, sales, payroll and other transactions.

A second IRS page, what kind of records should I keep, sorts them by purpose:

Gross receipts: the records that show what came in and from where, such as cash register tapes, deposit information, receipt books and invoices.
Purchases: what you bought to resell, and for a manufacturer, raw materials and parts, with canceled checks or electronic transfer records, receipts, card statements and invoices.
Expenses: costs other than purchases that are needed to run the business.
Assets: property such as machinery and furniture, with records of how it was acquired, what it cost, improvements, depreciation and disposal.
Employment taxes: the records of what you withheld and paid for people who work for you.

The same page lists sales slips, paid bills, invoices, receipts, deposit slips and canceled checks as supporting documents and suggests organizing them by year and by type of income or expense. That is an unglamorous instruction and the most useful one on the page, because a shoebox sorted by year is a project of an afternoon and a shoebox sorted by nothing is a project of a month.

Paper and electronic are both acceptable. New York’s Department of Taxation and Finance says on its recordkeeping page that your records may be in paper or electronic format, or both, and that you must make them available to the Department on request.

The federal clock

The default is three years, and the exceptions are not small

The IRS page on how long to keep records begins from a principle: how long you keep a document depends on the action, expense or event the document records. In general you keep records that support an item of income, a deduction or a credit until the period of limitations for that return runs out, which the page describes as the period in which you can amend your return.

Its list, as I read it:

Situation	How long the IRS page says to keep records
None of the situations below applies	3 years
You file a claim for credit or refund after filing your return	3 years from the date you filed, or 2 years from the date you paid the tax, whichever is later
You file a claim for a loss from worthless securities or a bad debt deduction	7 years
You do not report income that you should have, and it is more than 25% of the gross income on your return	6 years
You do not file a return	Indefinitely
You file a fraudulent return	Indefinitely
Employment tax records	At least 4 years after the tax is due or paid, whichever is later
Property records	Until the period of limitations expires for the year you dispose of the property

Read down that list and the rule most small businesses live by, three years, turns out to be the floor, not the ceiling. The page also says to keep copies of your filed tax returns, since they help with future and amended returns.

Property is the item people forget. A truck, a press or a piece of equipment you depreciate stays on the books for as long as you own it, and the clock for its records starts on the sale or disposal, not on the purchase. A receipt for a machine bought years ago can still be the most important piece of paper in the file.

One more line from the IRS, easy to skim past: before you discard records you no longer need for taxes, check whether other parties such as insurers or creditors require you to keep them longer. A bank can ask for older statements than the IRS will.

New York, on top of the federal list

Paper shredder dropping strips into a bin as old records are destroyed

Sales tax records and payroll records run on their own clocks

New York’s recordkeeping page says that you must keep records that allow you to prepare complete and accurate tax returns, and lists canceled checks, receipts, cash register tapes, purchase orders and other sales records as supporting documents. For the general case, it says to keep records and supporting documents for at least three years after you file a return.

Sales tax vendors get a more detailed document. Tax Bulletin ST-770, Recordkeeping Requirements for Sales Tax Vendors, says to keep all of your records for a minimum of three years from the due date of the return, and that the Department may require longer retention in some circumstances, such as an audit or a court case. The bulletin lists the kinds of records: copies of invoices and receipts and other sales documents, a detailed daily record if you give the buyer no written document, purchase records that establish the taxable status of what you bought, delivery records, exemption certificates linked to exempt sales, and the point-of-sale transaction detail that supports a sale, which the bulletin says must come with an audit trail and internal controls. Electronic records fall under the same rules as paper ones and must be available to the Department in an electronically readable form.

Payroll is where New York goes past the federal four years. The state’s wage order for miscellaneous industries, 12 NYCRR 142-2.6, says employers must “establish, maintain and preserve for not less than six years” weekly payroll records. Those include each employee’s name, address and Social Security number, wage rate, hours worked, gross wages, deductions and net wages. I read that regulation, but a restaurant or other hospitality business may fall under a different part of the state’s wage orders than the one I read, and I did not read that one. Whether six years is also the figure that applies to your industry is a question for the Department of Labor or your attorney, not a safe guess.

Putting the numbers together

The longest applicable number wins, per record

The practical way to apply these lists is to attach a keep-until date to each pile, using whichever rule gives the longest period for that pile. Here is a way to do that, and it is mine, not the IRS’s or New York’s.

Tax returns and their supporting documents: at least three years from filing; longer if any exception on the federal list applies to you.
Sales tax records: at least three years from the due date of the return.
Payroll records: at least six years if the New York order I read applies to you; the IRS says at least four for employment tax.
Equipment and property: until the limitations period ends for the year you dispose of it.
Anything an insurer, lender or landlord might ask for: ask them.

Notice how the same invoice can appear in more than one pile. A bill for restaurant equipment is an expense record, a property record and a document supporting a depreciation deduction. It belongs in the pile with the longest clock.

Scanning, shredding and the honest turn

Desk with calculator, folder and blank calendar for planning record retention

An honest turn against tidiness: the safest rule is also the most expensive one, because keeping everything forever costs storage, makes the useful papers harder to find and, for anything with personal information in it, creates a risk of its own. The Federal Trade Commission, in its guide for businesses on protecting personal information, says to dispose of sensitive information you no longer need in a way that makes it unrecoverable, shredding paper and using wipe utilities on old drives. A drawer of ten-year-old payroll sheets with Social Security numbers on them is not a safe archive; it is a liability with a lock on it.

The way through is a calendar. Once a year, after filing, go through the oldest pile, check each document against the list, and destroy what has outlived every rule that applies to it. Keep a short note of what you destroyed and when. If an exception on the federal list might apply, or the payroll question is still open, leave that pile alone until someone qualified answers.

For informational purposes only. Retention periods vary by tax, agency and industry and can change; have a licensed accountant or attorney confirm the periods that apply to your business before you destroy any record, and consult a licensed accountant or financial advisor on tax questions.