Keeping tax records: how long is enough?
Federal law requires you to maintain copies of your tax returns and supporting documents for three years. This is called the “three-year law” and leads many people to believe they’re safe provided they retain their documents for this period of time.
However, if the IRS believes you have significantly underreported your income (by 25 percent or more), or believes there may be indication of fraud, it may go back six years in an audit.
According to an IRS Auditor, you should also have a yearly backup of your accounting files on CD or a flash drive (you should in general have a yearly backup of your accounting files stored somewhere safe and it should be kept permanently).
Document Retention Guidelines
Document | How Long? |
Accounts payable ledgers and schedules | 10 years |
Accounts receivable ledgers and schedules | 10 years |
Audit reports of accountants | Permanently |
Bank statements | 10 years |
Capital stock and bond records | Permanently |
Cash books | 10 years |
Checks (canceled, with exception below) | 10 years |
Checks (canceled for taxes, property, contracts) | Permanently |
Contracts and leases (expired) | 10 years |
Contracts and leases still in effect | Permanently |
Correspondence, general | 4 years |
Correspondence (legal and important matters) | Permanently |
Depreciation schedules | 10 years |
Donation records of endowment funds (nonprofit) | Permanently |
Donation records, other | 10 years |
Deposit Summaries and copies of checks | 10 years |
Employee personnel records (after termination) | 7 years |
Employment applications | 3 years |
Expense analyses and expense distribution schedules | 10 years |
Financial statements (end-of-year) | Permanently |
General ledgers and end-of-year statements | Permanently |
Insurance policies (expired) | Permanently |
Insurance records, current accident reports, claims, policies, etc | Permanently |
Internal reports, miscellaneous | 3 years |
Inventories of products, materials, supplies | 10 years |
Invoices to customers | 10 years |
Bills from vendors | 10 years |
Journals | 10 years |
Minute books of Board of Directors | Permanently |
Payroll records | 10 years |
Purchase orders | 3 years |
Sales records | 10 years |
Scrap and salvage records | 10 years |
Subsidiary ledgers | 10 years |
Tax returns and worksheets | Permanently |
Audit Reports (IRS Findings) | Permanently |
Time sheets and cards | 10 years |
Volunteer records | 3 years |
Copy of accounting file yearly backups | Permanently |