How Long Does a Business Need to Keep Records?

Businesses must maintain accurate records for various reasons. Proper record keeping provides clarity on financial performance, supports operational efficiency, and ensures compliance with legal obligations. Diligent record preservation is fundamental for smooth operations and meeting responsibilities.

Federal Tax Record Retention

The Internal Revenue Service (IRS) mandates specific periods for retaining tax-related documents. Businesses should generally keep records that support income, deductions, and credits shown on a tax return for three years from the date the return was filed or the due date of the return, whichever is later. This period allows the IRS to examine the return and assess any additional tax.

A longer retention period applies if a business understates its gross income by more than 25% of the gross income reported on the return. In such cases, the IRS can assess tax for six years instead of three. This extended period highlights the importance of accurate reporting.

Businesses claiming a deduction for worthless securities or a bad debt deduction must retain supporting records for seven years. This extended period acknowledges the complexities and potential for disputes related to these specific types of deductions. Maintaining these records for the full seven years provides necessary evidence should the IRS question the validity of such claims.

Certain records require indefinite retention because they relate to the basis of property or employment taxes where no return was filed. For example, documents showing the cost or original basis of assets, such as real estate or equipment, should be kept as long as the property is owned and for three years after it is sold. These records are necessary to calculate gain or loss upon sale.

Employment tax records, including Forms 940 and 941, should be kept for at least four years after the date the tax becomes due or is paid, whichever is later. This includes records related to wages, tips, and other compensation paid to employees, as well as amounts withheld for federal income tax, Social Security, and Medicare.

Common examples of records important for federal tax compliance include income statements, balance sheets, and general ledgers. Invoices, receipts, and canceled checks supporting income and expense transactions are necessary. Payroll records detailing wages, withholdings, and tax payments should be kept, along with bank statements that reconcile business transactions.

Employment Record Retention

Employment-related record retention requirements stem from various labor laws and regulations, separate from federal tax mandates. Agencies such as the Department of Labor (DOL) and the Equal Employment Opportunity Commission (EEOC) establish rules for how long employers must keep specific employee documents. Compliance with these rules helps protect businesses from potential lawsuits and audits.

Payroll records, including wage rates, hours worked, and total wages paid, must typically be kept for three years under the Fair Labor Standards Act (FLSA). These records are essential during investigations into wage and hour compliance.

Personnel files, which contain job applications, resumes, performance reviews, disciplinary actions, and termination papers, generally need to be retained for one to three years after an employee’s termination. Form I-9, used to verify employment eligibility, must be kept for three years from the date of hire or one year after employment ends, whichever period is later.

Records related to the Family and Medical Leave Act (FMLA), such as employee notices of FMLA leave, medical certifications, and records of FMLA leave taken, must be maintained for three years. The Occupational Safety and Health Administration (OSHA) requires businesses to keep records of work-related injuries and illnesses for five years. Certain exposure records, however, may need to be retained for thirty years or longer.

Businesses should also be aware that state labor laws frequently impose longer retention periods for employment records than federal regulations. Consulting specific state requirements and adhering to the longest applicable retention period is a prudent practice.

General Business Record Keeping

Beyond tax and employment obligations, other business records are important for legal standing, operational continuity, and historical reference. Corporate governance documents, such as Articles of Incorporation or Organization, Bylaws, and Operating Agreements, generally require indefinite retention. These foundational documents define the legal structure and operational rules of the business.

Meeting minutes, particularly for board of directors or member meetings, along with stock ledgers or membership rosters, should also be kept permanently. These records provide a historical account of significant decisions and ownership changes within the entity.

Contractual agreements, including customer contracts, vendor agreements, leases, and loan agreements, are also important to retain. Businesses should typically keep these documents for the life of the contract plus an additional period, often six to seven years after the agreement expires. This allows for addressing any post-contractual disputes or obligations.

Property records, such as deeds, titles, and asset depreciation schedules, should be retained indefinitely. These documents establish ownership and are necessary for tax purposes and potential future sales. Intellectual property records, including patents, trademarks, and copyrights, also require permanent retention to protect the business’s unique assets.

Even without a strict legal retention period, keeping certain records can be beneficial for business analysis, historical reference, or potential future litigation. This includes marketing materials, research and development files, and communication logs. Businesses should also consider state-specific requirements for various business types, as these can impose additional record-keeping duties beyond general federal guidelines.