IRS records

How Long Do I Need to Keep My Business Tax Records?

Q: My understanding was that the IRS could file up to six years later. I have a small business and have been keeping my records six years. What is the current ruling for this?

A: Under section 6501(a) of the Internal Revenue Code, the IRS is required to assess tax within three years after a tax return is filed. Therefore, most people need only keep tax records for three years after filing a tax return, because that is the time period during which:
a)    a taxpayer can amend a tax return to claim a credit or refund; or
b)    the IRS can assess additional tax

As you are self-employed, however, there are a few circumstances in which you should keep records longer.

Keep employment-related tax records for at least 4 years.

Also, if you ever under-report income by 25% or more of the gross amount shown on your tax return, then you should keep records for at least six years after you file a return. In such as case, the IRS has six years to assess taxes – not just three.

What’s more you should keep tax records indefinitely if you file a fraudulent return, or if you do not file a return at all. But I assume that these last two scenarios don’t apply to you.

According to the IRS, “the exact length of time you should keep a document depends on the action, expense or event the document records.”

The IRS further offers this guidance:

1.    You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
2.    You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.
3.    You file a fraudulent return; keep records indefinitely.
4.    You do not file a return; keep records indefinitely.
5.    You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
6.    You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
7.    Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Here’s the direct link to exact page on the IRS’s website that answers the question: How long should I keep records? http://www.irs.gov/businesses/small/article/0,,id=98513,00.html

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