Now that the tax filing season is over for most of us, a common question we get concerns the length of time to retain tax related documents.
You generally start with the three year rule and build from there. The IRS typically has three years from the due date of the return or the date the return was filed, whichever is later, to audit a return. This is also the time frame you have to amend your return. However, if a return is determined to include a substantial understatement of income, then the statute of limitations period is extended to six years. Please see the following table for the general rule of thumb for each type of record.
Please keep in mind, it may be necessary to retain some records longer because of nontax reasons. For example, partnership or LLC agreements, insurance policies, leases, real estate closing statements, investments in private entities and employee payroll records might need to be kept longer than needed for IRS purposes. Taxpayers should consult with their attorneys about how long to retain legal documents.
If you would like to discuss your specific records retention issues, please contact us for further information.
Recommended Document Retention Time Periods (1)
Copies of tax returns as filed: 7 years after liquidation of entity
Tax and legal correspondence: 7 years after liquidation of entity
Audit reports: 7 years after liquidation of entity
General ledger and journals: 7 years after liquidation of entity
Financial statements: 7 years after liquidation of entity
Contracts and leases: 7 years after liquidation of entity
Real estate records: 7 years after liquidation of entity
Corporate stock records and minutes: 7 years after liquidation of entity
Bank statements and deposit slips: 6 Years (2)
Sales records and journals: 6 Years (2)
Other records relating to revenue: 6 Years (2)
Employee expense reports: 6 Years (2)
Travel and entertainment expenses records: 6 Years (2)
Losses form worthless securities or bad debts: 7 years(2)
Canceled checks: 3 years (2)
Paid vendor invoices: 3 years (2)
Employment tax records: 4 years (4)
Inventory records: 3 years (2), (3)
Depreciation schedules: Tax life of asset plus 3 years
Other capital asset records: Tax life of asset plus 3 years
Other records relating to expenses: 3 years (2)
Partnership agreement and amendments: Permanently
Operating agreement and amendments (LLC): Permanently
(1) This table contains recommended document retention periods based on federal requirements. Any unique retention requirements resulting from state tax statutes will need to be included.
(2) From the later of the tax return due date or filing date. (All records related to return should be kept for at least six years if there is any concern the IRS could show significant understatement of gross income on the return.)
(3) Longer if you use LIFO
(4) From the later of the date the tax becomes due or paid