The short answer
Generally, keep records that support a tax return until that return's period of limitations runs out, which is usually 3 years after filing and longer in some cases. The IRS says to keep employment tax records at least 4 years and property records until the period ends for the year you dispose of the property. Idaho asks for sales tax records for at least 4 years and unemployment insurance wage records for 5 full years.
Start with what each record proves
The question usually comes up when a closet fills with bank boxes or a laptop dies. It helps to stop thinking about records by age and start thinking about what each one proves. The IRS says the length of time to keep a document depends on the action, expense or event it records.
For income tax, the anchor is the period of limitations: the time in which you can amend a return to claim a refund, or the IRS can assess more tax. Generally, you keep the records that support each item of income, deduction or credit on a return until that period runs out. The IRS also says to keep copies of the returns themselves, because they help with future returns and amended ones.
The IRS periods for income tax records
The IRS page "How long should I keep records?" lists these periods. Unless stated otherwise, the years count from the date the return was filed, and a return filed early is treated as filed on its due date.
- 3 years in the ordinary case.
- 3 years from filing or 2 years from paying the tax, whichever is later, if you file a claim for credit or refund after you file.
- 7 years if you claim a loss from worthless securities or a bad debt deduction.
- 6 years if you do not report income you should have, and it is more than 25% of the gross income shown on the return.
- Indefinitely if you do not file a return, or if you file a fraudulent one.
Payroll and contractor records
If you have employees, the IRS says to keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. Those records include amounts and dates of wage payments, employee names, addresses and Social Security numbers, dates of employment, Forms W-4, dates and amounts of tax deposits, copies of returns filed, and records of fringe benefits and expense reimbursements.
Other agencies set their own periods, and the longest one is the one you have to meet. The Idaho Department of Labor says unemployment insurance wage records must be kept for five full years after the calendar year in which the wages are paid. The U.S. Citizenship and Immigration Services says to keep each Form I-9 for three years after the date of hire or one year after employment ends, whichever is later.
For contractors, the IRS says to keep each Form W-9 for four years. The rest of the contractor file is covered in paying contractors: the records to have before January.
| Record | Keep at least | Who sets it |
|---|---|---|
| Records supporting a filed income tax return | 3 years after filing, longer in the cases listed above | IRS |
| Employment tax records (wages, W-4s, deposits, returns) | 4 years after the tax is due or paid, whichever is later | IRS |
| Form W-9 from each contractor | 4 years | IRS |
| Form I-9 for each employee | 3 years after hire or 1 year after employment ends, whichever is later | U.S. Citizenship and Immigration Services |
| Idaho unemployment insurance wage records | 5 full years after the calendar year the wages were paid | Idaho Department of Labor |
| Idaho sales and use tax records | 4 years; exemption certificates while the buyer is a customer, plus 4 years | Idaho State Tax Commission |
| Property and equipment records | Until the period of limitations ends for the year you dispose of the property | IRS |
Equipment, vehicles and other property
Property records last the longest. The IRS says to keep records relating to property until the period of limitations expires for the year in which you dispose of the property, because you need them to figure depreciation and the gain or loss when you sell. For a building or a long-lived machine, that can mean many years past the purchase.
IRS Publication 583 lists what those records should show: when and how you acquired the asset, the purchase price, the cost of any improvements, any Section 179 deduction and depreciation taken, how you used it, and when, how and for how much you disposed of it. A fixed asset list kept up to date each year holds all of this in one place. Which purchases go on that list in the first place is the subject of expense or capitalize a purchase.
Idaho sales tax records
If you collect Idaho sales tax, Idaho Code section 63-3624 says sellers who file returns must keep their records for at least four years from when the records were made, unless the Tax Commission authorizes their destruction sooner in writing. The Idaho State Tax Commission's guide for retailers adds that you may need to keep records for seven years if you do not file returns, and that resale and exemption certificates are kept as long as you do business with the buyer, plus four years.
The Tax Commission lists the records that count: your normal books of account (which can be kept on a computer), plus the bills, receipts, invoices, cash register tapes, job or work orders and contracts behind them, the schedules and working papers used to prepare your returns, and copies of resale or exemption certificates. It says it will bill you for the tax if you cannot show why a sale was not taxed.
Electronic records and a written policy
Most records now live in software and on bank websites, and the same rules apply to them. IRS Publication 583 says all requirements for paper books and records also apply to electronic storage systems, and that original paper records may be destroyed once the system has been tested and procedures are in place to keep it compliant. Revenue Procedure 97-22 has the details, and your CPA can tell you whether your scanning setup meets them.
Before anything is thrown out, the IRS says to check whether another party, such as an insurer or a lender, requires you to keep it longer. A short written retention policy turns all of this into a routine. Most businesses that have one cover the same points:
- Each record type, how long it is kept, and the rule that sets the period
- Where it is stored, and who can reach it if the owner is unavailable
- Statements and payroll reports downloaded as you go, since banks and providers limit how far back you can download
- A full export from any old system before you switch software
- A hold on destroying anything once you learn of an audit, claim or dispute
Where the monthly books fit
Retention is easier when the monthly routine produces the records. Reconciling each account every month means each statement gets downloaded and filed while it is still easy to get. Attaching receipts to transactions in the accounting software keeps the support with the entry instead of in one person's email. At year end, the same files become the package your CPA asks for, described in the year-end handoff to your CPA.
Churches follow many of the same rules with a few differences of their own, covered in church records retention. Danielson Bookkeeping & Consulting keeps books in cloud accounting software and reconciles every account to its statement as part of small business bookkeeping. Setting the retention periods themselves is a call for your CPA or attorney, and how records are shared and handed back is on how we work.
