How long to keep business receipts and records

Clients ask bookkeepers this all the time, and "keep everything forever" is not a helpful answer. The IRS publishes retention periods, and the right period depends on the client's situation. This guide summarizes them and links to the source so you can check the current wording.

General information based on IRS guidance, not tax or legal advice. State rules, lenders, insurers and industry regulations can require longer periods. Confirm with the client's tax professional.

The IRS rule of thumb: the period of limitations

The IRS says to keep records for as long as they may be needed to administer the tax law, which is tied to the "period of limitations" for the return. Its guidance on how long to keep records lists these periods:

• 3 years from the date the original return was filed, or 2 years from the date the tax was paid, whichever is later, if the client files a claim for credit or refund after filing. This is the default when none of the situations below apply.
• 6 years if the client does not report income that should have been reported and it is more than 25% of the gross income shown on the return.
• 7 years if the client files a claim for a loss from worthless securities or a bad debt deduction.
• Indefinitely if no return is filed, or if a fraudulent return is filed.
• At least 4 years for employment tax records, after the date the tax becomes due or is paid, whichever is later.

What counts as a record

The IRS lists supporting documents as sales slips, paid bills, invoices, receipts, deposit slips and canceled checks. These support the entries in the books and on the tax return, and should be kept in an orderly way.

Records that often need to be kept longer

• Property and equipment. Keep records that show the cost and improvements until the period of limitations ends for the year the property is sold or disposed of. This can be many years after the purchase.
• Tax returns themselves, and the workpapers behind them.
• Corporate and legal records, such as formation documents, which are often kept permanently.
• Anything a lender, insurer or landlord requires. Their contracts can set longer periods than the IRS.

Paper or digital?

Digital copies are generally accepted as long as they are legible and complete and can be produced when needed, but the details are in IRS guidance on electronic records. Tell clients to keep a good scan or photo with the date, vendor and amount visible, and keep the file in a place they will still be able to reach in several years.

What to tell clients

1. "Keep tax records for at least 3 years from filing. Keep property and equipment records longer."
2. "Send me a photo of each receipt within a week of the purchase."
3. "If you lose one, tell me, and I will note it in your file."

Your own engagement letter should say how long you keep a client's documents and what happens to them when the engagement ends. See the client receipt policy template.

When a receipt is missing despite the rules above, see what to do when a client has no receipt.

More guides

• How to Get Receipts From Clients (Without Nagging Every Month)
• Missing Receipt Request Email Template for Bookkeepers
• What to Do When a Client Has No Receipt
• How to Chase Receipts by Text Message (Without Being Annoying)
• Month-End Close Checklist for Bookkeepers (With the Receipt Step)
• Client Receipt Policy Template for Bookkeepers
• Hubdoc Alternatives for Solo Bookkeepers: How to Choose