How Long Do You Have to Keep Business Receipts?

Keeping accurate business records, including receipts, is a foundational practice for any business operation. These records primarily ensure compliance with various regulatory requirements and provide a clear financial history. Maintaining detailed documentation supports accurate financial reporting and helps businesses effectively manage their expenses and income.

Federal Tax Record Retention

The Internal Revenue Service (IRS) generally requires businesses to keep records for periods related to the statute of limitations for assessing additional tax or claiming a refund. For most income tax purposes, the IRS can audit returns for up to three years from the date the return was filed or the due date, whichever is later. Businesses should retain all supporting documents, such as sales receipts, purchase invoices, and bank statements, for this three-year period.

A longer retention period applies if a business substantially understates its gross income. If the understatement exceeds 25% of the gross income reported, the IRS has six years to assess additional tax. Records supporting significant income figures, like large sales contracts or service agreements, should be kept for this longer timeframe.

Businesses must keep records indefinitely if they file a fraudulent return or do not file a return at all. Records related to asset purchases and sales, such as property deeds or equipment invoices, should also be kept for an extended period. These documents are necessary to calculate depreciation, determine gain or loss on sale, and support the basis of the asset, often for the life of the asset plus three years after its disposition.

Payroll records, including Forms 941 and W-2s, and supporting documents like time cards and payroll registers, generally need to be kept for at least four years after the tax becomes due or is paid, whichever is later. These records substantiate wage payments, tax withholdings, and employer contributions, which is essential for verifying compliance with federal employment tax laws.

State and Other Regulatory Record Retention

Beyond federal tax obligations, businesses must also consider record retention requirements imposed by state and local authorities. These periods can vary significantly depending on the jurisdiction and the type of tax or regulation involved. State income tax, sales tax, and property tax records often have distinct retention schedules that may differ from federal guidelines. Businesses operating in multiple states must be aware of each state’s specific requirements.

Many states align their general income tax record retention periods with the federal three-year statute of limitations, but some may require longer periods, such as four or five years. Sales tax records, including sales invoices, exemption certificates, and purchase records for taxable goods, typically need to be retained for three to seven years, depending on state law. Businesses should consult their state’s Department of Revenue or equivalent agency for precise retention periods.

Non-tax regulatory bodies also mandate specific record retention. Employee records are subject to various federal and state labor laws. Under the Fair Labor Standards Act (FLSA), employers must generally keep payroll records for three years and supplementary documents like time cards for two years. The Americans with Disabilities Act (ADA) and the Occupational Safety and Health Act (OSHA) also have specific record-keeping requirements for employment applications, medical records, and workplace injury reports, often ranging from one to 30 years depending on the document type.

Corporate governance documents, such as articles of incorporation, bylaws, and meeting minutes, usually need to be retained indefinitely as they establish the legal framework of the business. Contracts and agreements with vendors, customers, or partners should be kept for the duration of the contract plus typically seven years after its termination to address potential disputes. Adhering to these varying requirements helps businesses remain compliant.

What Constitutes a Valid Business Record

A valid business record, particularly a receipt, must contain specific information to be acceptable for tax purposes or audits. It must clearly show the date of the transaction, the amount paid, and the name of the vendor or service provider. It should also describe the goods or services purchased and indicate the business purpose of the expense. For example, a receipt for a business meal should detail who was present and the business topic discussed.

Records must be clear and legible. Faded paper receipts or blurry digital images may be deemed insufficient documentation. Maintaining records in an organized manner, such as by category or date, enhances their validity and accessibility during review.

Both physical and electronic formats are generally acceptable for business records, provided they ensure accuracy, integrity, and accessibility. Electronic records must be maintained in a way that is reliable, capable of producing legible hard copies when required, and protected against unauthorized alteration or destruction. Businesses often use accounting software or cloud-based solutions to manage their digital documentation.

For an expense to be substantiated, the record must be complete. This includes having all the necessary details to prove the nature, amount, date, and business purpose of the expenditure. Incomplete records may lead to the disallowance of deductions during a tax audit. Businesses should implement robust procedures for capturing and maintaining all relevant financial transaction information.