Most tax records only need to be kept for 3 years under IRS rules, but if you file in California, plan on at least 4. Some records you should keep much longer, and a few you should never throw away. Here’s how long to keep what, so you’re ready if the IRS or the Franchise Tax Board ever asks.
The short answer
The IRS’s rule is to keep the records that support your income, deductions and credits until the “period of limitations” for that return runs out. That’s the window in which you can amend the return, or the IRS can come back and assess more tax. For most returns, it’s 3 years. That means if you get audited, the IRS can generally go back 3 years.
California gives itself an extra year. The Franchise Tax Board usually has 4 years from the due date of the return, or the date you filed it, to examine it. So for Californians, 4 years is the real minimum.
Many bookkeepers, me included, suggest keeping supporting records for 7 years. It covers almost every situation below, and it’s simpler than tracking a different deadline for every document.
How long to keep each type of record
| Situation or record | How long to keep it |
|---|---|
| Tax returns and supporting records, normal situation (federal) | 3 years from filing |
| California returns and supporting records | 4 years from the due date or filing date |
| You filed a claim for a credit or refund after filing | 3 years from filing or 2 years from paying the tax, whichever is later |
| Payroll and employment tax records | At least 4 years after the tax is due or paid, whichever is later |
| You left out income of more than 25% of the gross income on your return | 6 years |
| You claimed a loss from worthless securities or a bad debt deduction | 7 years |
| Records for property and equipment you own | As long as you own it, plus the limitation period for the year you sell or dispose of it |
| You didn’t file a return, or filed a fraudulent one | Indefinitely |
| Copies of your filed tax returns | Permanently (recommended) |
The time limits count from when the return was filed. A return filed early is treated as filed on its due date.
Keep these permanently
Some documents are worth keeping for as long as the business exists, and then some:
- Copies of every tax return you’ve filed
- Formation documents: articles of organization or incorporation, operating agreements, EIN letters
- Year-end financial statements and general ledgers
- Records for property, equipment and other fixed assets until the limitation period ends for the year you sell them. You need them to figure depreciation and your gain or loss when you sell.
What about receipts?
Bank and credit card statements show nearly every transaction, so you don’t need to hand every receipt to your bookkeeper. The receipts I need are for cash purchases, large purchases that have to be split across several categories, and fixed asset purchases. Keep the rest yourself for the retention periods above, in case of an audit.
The IRS expects receipts for business travel, gift and car expenses of $75 or more, and for lodging at any amount.
Before you shred anything
Tax rules aren’t the only reason to keep records. Your insurance company, lender, landlord or investors may require you to keep some documents longer than the IRS does. Check before you shred.
When it’s time, shred paper records instead of tossing them. They’re full of account numbers and other personal information.
Paper or digital?
Digital copies are fine, as long as they’re clear, complete and easy to find. Scan paper receipts and statements, name the files consistently, and organize them in folders by year and category. Back everything up in at least two places, such as an external drive and a cloud service.
Frequently asked questions
How long should I keep tax records in California?
At least 4 years. The Franchise Tax Board usually has 4 years from the due date of the return, or the date it was filed, to examine it. That’s a year longer than the IRS’s standard 3 years.
How long should I keep payroll records?
At least 4 years after the tax is due or paid, whichever is later. That includes pay records, timesheets and payroll tax filings.
Do I need to keep tax returns forever?
It’s a good idea. Old returns help when you prepare new ones, amend a return or apply for a loan, and they take up very little space as digital files.
What if I never filed a return for a year?
There’s no time limit on that year, so keep every record for it indefinitely. If you’ve fallen behind, read how to get caught up.
Need help organizing your records?
If your records are scattered across shoeboxes, inboxes and old hard drives, I can help you set up a simple system that keeps everything where you can find it. Book a free call.