How Long to Keep Tax Records, and What You Can Finally Shred

Most business owners sit at one of two extremes. Either nothing is ever deleted, or the shoebox gets emptied the moment a return is filed. Neither is right, and the correct answer is not one number.

The retention period depends on what the document proves and when the clock starts.

The ordinary rule is three years

For most returns, the IRS has three years from the filing date to assess additional tax, so three years is the baseline for the records that support what you filed. Receipts, invoices, mileage logs and bank statements all sit here.

The clock starts on the filing date or the due date, whichever is later. Filing early does not start it early.

Six years when income was understated

If more than a quarter of your gross income was left off a return, the assessment window doubles to six years. You will not usually know this has happened at the time, which is the argument for treating six years as the practical default for anything income-related.

Where no return was filed at all, or a return was fraudulent, there is no time limit. Those records are kept indefinitely.

Some documents outlive the return entirely

Anything establishing the cost basis of an asset needs to survive until three years after you sell it, not three years after you bought it. A property bought in 2010 and sold in 2030 means the purchase paperwork matters into the 2030s.

The same logic applies to improvements, depreciation schedules and partnership basis records. These are the documents people most often destroy too early, and they are the hardest to reconstruct. If your books have drifted, basis records are usually the first casualty.

Employment records run on their own clock

Payroll tax records have their own retention period, generally four years from when the tax was due or paid. That runs separately from the return itself, so a business that closed still needs them.

Keep anything supporting worker classification for at least as long. Those decisions get questioned years after the fact.

How Exemplary Helps

Exemplary keeps client records organised by what each document proves rather than by the year it landed, so the things that need to survive a decade are not filed alongside the things that can go after three.

Storage is cheap. Reconstructing a basis record from 2010 is not.