Document Retention

Knowing how long to keep business records is crucial for legal compliance, tax purposes, and financial management. This guide outlines retention requirements and best practices.

Why Document Retention Matters

Proper document retention:

• ✅ Ensures tax compliance
• ✅ Protects against audits
• ✅ Supports legal claims or defense
• ✅ Enables historical analysis
• ✅ Reduces storage costs (by discarding old records appropriately)

General Retention Guidelines

IRS Requirements

The IRS generally recommends keeping tax-related records for at least 3 years from the date you filed your return. However, specific situations require longer retention:

Situation	Retention Period
Standard tax records	3 years
Filed claim for credit or refund	3 years from filing date or 2 years from paying tax, whichever is later
Did not report income (>25% of gross)	6 years
Filed fraudulent return	Indefinitely
Did not file a return	Indefinitely
Employment tax records	4 years after tax due/paid

Safe Harbor Rule

Keep most business records for 7 years to be safe. This covers most IRS audit scenarios and statute of limitations periods.

Detailed Retention Schedule

Permanent Records

Keep these records forever:

• Corporate formation documents
• Business licenses
• Patent/trademark/copyright records
• Property deeds and titles
• Stock certificates
• Year-end financial statements
• Tax returns (all years)
• Audit reports
• Legal documents and contracts (after expiration)

7+ Years

• Accounts payable ledgers
• Accounts receivable ledgers
• Bank statements and reconciliations
• Canceled checks for major purchases
• Credit card statements
• Depreciation schedules
• Employee expense reports
• General ledgers
• Inventory records
• Invoices (sales and purchase)
• Journal entries
• Payroll registers
• Profit and loss statements
• Purchase orders
• Sales records

4-6 Years

• Employment tax records (4 years)
• Accident reports and workers' comp (5 years)
• Time cards/timesheets (4 years)

3 Years

• Monthly bank statements (if reconciled annually)
• Petty cash records
• Routine correspondence

Until Disposition + 7 Years

• Asset purchase documents
• Asset sale documents
• Depreciation schedules for sold assets
• Property records
• Vehicle records

Special Considerations

Payroll Records

Keep payroll records for at least 4 years after the tax due date or payment date, whichever is later.

Required documents:

• Employee names, addresses, and SSNs
• Hours worked and wages paid
• Tax withholding information
• W-4 forms
• Payroll tax returns

Employment Records

Document Type	Retention Period
Job applications (hired)	7 years after termination
Job applications (not hired)	3 years
I-9 forms	3 years after hire or 1 year after termination, whichever is later
Personnel files	7 years after termination
Benefits records	6 years
FMLA records	3 years
OSHA records	5 years

Legal Documents

• Active contracts: Keep until contract expires + 7 years
• Expired contracts: Keep for 7 years after expiration
• Litigation files: Keep permanently
• Accident reports: Keep for 6 years

Electronic Records

Electronic records have the same retention requirements as paper records. Ensure they are:

• Properly backed up
• Readable throughout retention period
• Protected from unauthorized access
• Easily retrievable

Document Destruction

When to Destroy Records

Once the retention period expires, you can (and should) destroy records to:

• Free up storage space
• Reduce clutter
• Minimize security risks
• Lower costs

How to Destroy Records

Paper Documents

• Shred sensitive documents (use cross-cut shredder)
• Recycle non-sensitive documents
• Use professional shredding service for large volumes

Electronic Documents

• Securely delete files (don't just move to trash)
• Wipe hard drives before disposal
• Destroy old backup media
• Use data destruction software for thorough deletion

Important

Never destroy documents if:

• You're under audit or investigation
• Litigation is pending or threatened
• You've received a document preservation notice
• The retention period hasn't expired

Creating a Retention Policy

Step 1: Inventory Documents

List all types of documents your business generates and receives.

Step 2: Determine Retention Periods

Assign retention periods based on:

• Legal requirements
• Business needs
• Industry standards

Step 3: Document Your Policy

Create written policy including:

• Document categories
• Retention periods
• Storage locations
• Destruction procedures
• Responsible parties

Step 4: Implement and Train

• Train employees on policy
• Establish procedures
• Set up filing systems
• Schedule regular reviews

Step 5: Review Annually

Update policy as:

• Laws change
• Business changes
• New document types emerge

Sample Retention Policy Template

DOCUMENT RETENTION POLICY

Category: Tax Records
Documents: Tax returns, supporting documents, correspondence
Retention Period: 7 years from filing date
Storage: Secure fireproof cabinet / Cloud storage
Destruction Method: Cross-cut shredding / Secure deletion
Responsible Party: CFO / Bookkeeper

[Repeat for each category]

Best Practices

1. Mark Destruction Dates

When filing documents, note the destruction date:

Example: "Destroy after December 31, 2031"

2. Annual Review

Schedule yearly review of:

• Documents eligible for destruction
• Retention policy updates
• Storage system effectiveness

3. Centralized System

Maintain single retention schedule accessible to all relevant staff.

4. Backup Everything

Keep multiple copies of critical records:

• On-site backup
• Off-site backup
• Cloud backup

5. Document Destruction

Keep log of destroyed documents:

• Date destroyed
• Document type
• Destruction method
• Who authorized destruction

State-Specific Requirements

Some states have longer retention requirements than federal law. Check your state's requirements for:

• Sales tax records
• Employment records
• Workers' compensation records
• Business licenses

Consult Professionals

Work with your accountant and attorney to create a retention policy tailored to your:

• Business type
• Industry regulations
• State requirements
• Specific circumstances

Red Flags: When NOT to Destroy

Do not destroy documents if:

• Audit is in progress or pending
• Legal case is active or anticipated
• Government investigation is underway
• Document preservation order received
• Business sale/merger in negotiation
• Loan application pending review

Next Steps

Learn about organizing your records efficiently to make retrieval easy and ensure compliance with your retention policy.