How Long to Keep Business Records After You Close (IRS Rules)

The basic rule for keeping business records

The IRS says the time you should keep a document depends on the action, expense or event it records. Generally, you must keep records that support an item of income, deduction or credit on a tax return until the period of limitations for that return runs out. That is the period in which you can amend the return to claim a credit or refund, or the IRS can assess more tax.

Unless stated otherwise, the IRS counts the years from the date the return was filed. Returns filed before the due date are treated as filed on the due date.

IRS record retention periods

3 years: the default

Keep records for 3 years if none of the longer situations below applies.

3 years or 2 years after payment: refund claims

If you file a claim for credit or refund after you file your return, keep records for 3 years from the date you filed the original return or 2 years from the date you paid the tax, whichever is later.

4 years: employment tax records

Keep employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later.

6 years: underreported income

Keep records for 6 years if you do not report income you should have reported and it is more than 25% of the gross income shown on the return.

7 years: worthless securities or bad debt

Keep records for 7 years if you file a claim for a loss from worthless securities or a bad debt deduction.

Indefinitely: no return or a fraudulent return

Keep records indefinitely if you do not file a return, or if you file a fraudulent return.

Property records

The IRS says to keep records relating to property until the period of limitations expires for the year in which you dispose of the property. You need them to figure depreciation, amortization or depletion and the gain or loss when you sell. If you received property in a nontaxable exchange, keep the records on the old property as well as the new one, until the period of limitations expires for the year you dispose of the new property.

When you close, that means the records for anything you sold during the wind-up have to last until the limitations period for the final return runs out.

Business records when you close the business

Payroll records after the last paycheck

On its closing-a-business page, the IRS says that when you file the final Form 941 or 944, you attach a statement with the name of the person keeping the payroll records and the address where they will be kept. Decide who that is before you close.

State tax records

States have their own rules. California's Franchise Tax Board, for example, says all returns stay subject to audit until the statute of limitations expires. Check your state's tax agency before you delete anything.

Non-tax reasons to keep records

The IRS says that when records are no longer needed for tax purposes, you should check whether you must keep them longer for other purposes, for example because your insurance company or creditors require it. Contracts, employment files, licenses and litigation holds can all have their own periods.

Keep copies of filed returns

The IRS recommends keeping copies of your filed tax returns. They help when preparing future returns and when amending.

Records you keep versus data you sell

Retention rules tell you what you must keep, not what you must destroy. A closing business often holds more than its tax records: email archives, CRM data, support tickets and internal chat. Some of that has value to buyers who license company data. If you sell or license any of it, keep the records you are required to retain, check privacy and contract restrictions first, and keep a copy of the agreement with your business records.

Common questions