← All insights

How long should you keep your business records?

It's not "forever," but it's longer than most people think — and longer than the answer your friend at the coffee shop gave you. The IRS publishes clear guidance on this in Publication 583, but it's buried in tax-speak. Here's the practical version.

The general rule: 3 years

Most income, deductions, and credits you claim on a return need to be backed up for three years from the date you filed (or the due date, whichever is later). That covers the standard IRS window to audit a return. Bank statements, receipts, invoices, mileage logs, and the general paper trail that supports a line on your return all fall in this bucket.

The 6-year rule: significant underreporting

If you significantly underreported income — defined as omitting more than 25% of the gross income you should have reported — the IRS can come back for six years. That's not a rule that applies to most well-run small businesses, but it's why "three years to be safe" is actually a little loose. Six is safer.

The 7-year rule: bad debts and worthless securities

If you claim a deduction for a bad debt or a worthless security, hold the supporting records for seven years. Less common for small service businesses; more common for retailers who occasionally write off uncollectible receivables.

Indefinite: returns themselves and some employment records

Two categories the IRS says to keep indefinitely:

• The tax returns themselves. Not just the records that support them — the returns. Storage is cheap; the cost of not having a return in year 11 if you ever need to prove something is high.
• If you have employees: employment tax records for at least four years after the tax was due or paid, and certain payroll records (especially anything wage-and-hour related under WA L&I rules) for years beyond that.

Property records: until you sell, plus more

Anything you buy that gets depreciated — vehicles, equipment, real estate — needs to be kept for as long as you own it plus the relevant audit window after you sell or dispose of it. So a piece of equipment bought in 2020 and sold in 2030: keep the records until at least 2033.

Digital is fine

The IRS has accepted digital records for years. You don't need a shoebox of fading thermal receipts. A clean, backed-up digital folder structure — by year, by category — works perfectly and saves enormous time at year-end. We recommend storing critical records (returns, key contracts, depreciation schedules) in two places: a cloud service like Google Drive or Dropbox, plus a separate backup.

A practical rule of thumb

If you don't want to think about every category individually, this is a defensible approach for most small businesses:

• Tax returns themselves — keep forever, digital.
• Supporting documents (receipts, statements, invoices, mileage logs) — keep seven years.
• Employment records — keep seven years after the employee leaves.
• Property and depreciation records — keep until the asset is sold plus seven more years.

That's longer than the strict minimum, but the trade-off is small — digital storage is cheap, peace of mind is worth a lot, and it covers the WA-specific employment record windows comfortably too.

Based on IRS Publication 583 and general guidance at irs.gov. WA-specific employment record retention has its own rules under Labor & Industries — for a custom plan, talk to us.

Source: irs.gov