Small business owners can get overwhelmed with paperwork, but knowing how long to keep documents can help you de-clutter. Here are the recommended document retention periods for common financial documents:
- Tax Returns – Keep 3 to 7 years. The IRS generally has a 3-year window to audit a tax return, but this period extends to 6 years if income is under-reported by more than 25%.
- Canceled Checks – Keep 3 to 7 years. Most banks store digital copies of checks, but it’s wise to keep any that pertain to taxes, major purchases, or legal agreements for at least three years, or seven if tied to tax filings.
- Invoices – Keep 7 years. Invoices are part of your income records, so it’s best to keep them for seven years to cover potential audits or legal inquiries.
- Tax Returns and Supporting Documents – Keep 7 years. While the IRS suggests keeping tax returns for at least 3 years; 7 years covers extended audits and potential questions on deductions or income discrepancies.
- Payroll Records – Keep 7 years. Payroll records are needed for IRS compliance, and for employee or contractor disputes.
- Bank Statements – Keep 3 to 7 years. Like checks, statements should be kept particularly if they relate to tax filings or financial audits.
- Legal Documents, Contracts, Leases, etc. – Keep for as long as they’re active + 7 years. If a contract is tied to a property or long-term agreement, consider keeping it indefinitely.
- Employee Records – Keep 4 to 7 years after termination. For compliance with federal and state labor laws, it’s recommended to keep employee records for at least 4 years, and 7 for tax purposes.
It’s about covering yourself in case of audits and compliance issues, and staying organized always helps in the long run.