How Long Should I Keep My Tax Documents?

If you’re like most small business owners, you’re constantly deluged with paperwork and documents. There’s the mail, arriving every day with numerous letters and statements that have to be sorted and filed. Not to mention all the client and employee contracts, insurance policies, bank statements, receipts, and so on that must be digitally or physically managed. Over time, all these documents pile up!

You might wonder if or when you can finally shred or discard some of them, particularly tax documents. No one wants to be without the papers they need when the IRS comes knocking. But it can be nice to eventually let go of some of them – freeing up both virtual and actual space – when the time is right. Which begs the question: when is the time right?

When is the Best Time to Rid Yourself of Old Tax Records?

When you have questions like this, the best place to look is the IRS’s website, a helpful resource that offers federal tax information to small business owners.  Publication 583 in particular, covers a variety of topics, from how to obtain a taxpayer identification number (TIN) and choose an accounting method to business tax information, deductions, and recordkeeping tips. It also sheds light on how long you should keep important records, including tax documents.

You’ll want to keep most documents for at least three years (check Publication 583 for specific guidelines for each document type). The general rule for tax documents, however, is to hold on to them indefinitely—yes, for all eternity! Perhaps you can begin purging some of them after 20 years or so, but in general, it’s best to keep them safe and secure for a very long time. Why?

Tax returns, in particular, are a “window in time” that the IRS and the state can refer back to and question. In this situation, it’s critical to have the full documentation available so you know exactly what you included on that specific return. In fact, IRS audits can occur up to six years after you’ve filed a return if the IRS suspects a substantial error. Meanwhile, there's no statute of limitations in instances of suspected fraud or failure to report income. By holding on to your tax returns indefinitely, you’ll have all the documentation necessary to defend yourself in case of an audit or litigation.

A Final Word from Tuesday P. Brooks, Owner of AJOY

While the IRS has different expectations regarding how long you should keep various documents, if you are a business owner, it’s strongly advisable to keep your tax records for as long as the business exists, or at least up to 20 years thereafter. Other records, such as receipts, bank statements, invoices, and so on, can likely be safely discarded after a minimum of three years, although you should check Publication 583 for specifics and not hesitate to hold on to them even longer if in doubt.

My parting words of wisdom? Make the IRS’s website your friend. Use the search bar at the top of the page to find publications that address any questions you have. And if you’re still confused or unsure? Partner with a trustworthy tax professional who will gladly help you further!