I Keep Good Records; But How Long Should I Keep Them For?

Never underestimate the importance of keeping good records. No matter how successful your business is, failing to properly document operations can entangle you in a web of legal problems. For a better understanding of what records your business should keep, check out the recently published blog from the Loans and Grants Advisor, Bookkeeping Basics for Small Business. Once you are efficiently and effectively maintaining good recordkeeping practices, a larger question remains- how long should you keep those records for?
The appropriate length of time to keep each record varies from document to document. The action,event, or expense a document records all affect the importance of keeping it for an extended period of time. 
A prudent guideline for keeping records ranges anywhere from 3 to 7 years. During this time, keep documents organized and readily available in the event you're called upon to backup any claims. More specifically, the following figures are considered by the IRS to be recordkeeping best practices: 

Keep your records for 3 years if you...

• Owe additional tax on any of your returns
• File a claim for a credit or refund after you file your return

Keep record for 4 years if you...

• They are related to employment (employee tax records as well as those pertaining to Department of Labor required regulations such as the Occupational Health and Safety Act, the Family Medical Leave Act, and the Fair Labor Standards Act)

Keep records for 6 years if you...

• Fail to report income that should be reported and it totals more than 25% of the gross income shown on your return

Keep records for 7 years if you...

• File a claim for a loss from worthless securities or bad credit deduction

Keep records indefinitely if you...

• File a fraudulent return
• Do not file a return

Generally, records supporting tax returns should be kept until the period of limitations, or time in which amendments are permissible, ends. Review the period of limitations guide from the IRS for more information. Even if your records are no longer necessary for tax or employment purposes, you should ensure that they're no longer needed other reasons before discarding any documents. Insurance companies and creditors are both non-government entities that often have
different requirements than the IRS.

Message Edited by JamieD on 09-01-2009 12:56 PM