“Seven years” is the answer most owners have absorbed, and it is wrong often enough to be worth correcting. The real retention period is not a single number — it is driven by the period of limitations on the return the record supports, and several categories run far longer than seven years.
The governing idea
The IRS ties record retention to the period of limitations: the window during which you can amend a return to claim a credit or refund, and during which the IRS can assess additional tax. Keep the records until that window closes.
The IRS guidance on record retention sets out the periods directly:
- Three years is the default, running from the date you filed the return.
- Six years if you did not report income you should have, and it exceeds 25% of the gross income shown on the return.
- Seven years for a claim relating to a bad debt deduction or a worthless securities loss.
- Indefinitely if you filed a fraudulent return, or did not file at all.
That last pair is why blanket advice fails. There is no statute running in your favor on an unfiled year, so the records supporting it never become safe to discard.
Employment records: four years
Employment tax records follow their own rule. Publication 15 directs employers to keep them for at least four years after the date the tax becomes due or is paid, whichever is later.
Practically, that covers payroll registers, W-4s, W-2 and 1099 copies, timesheets supporting wage calculations, records of tips reported, and proof of deposits. Because the clock starts at the later of due-or-paid, a late deposit extends the retention period for that quarter.
Asset records outlive the asset
This is the category owners most often discard too early. Records that establish the basis of property — the purchase invoice, closing statement, capital improvements, and the depreciation you have claimed — must be kept until the period of limitations expires for the year in which you dispose of the property.
Buy equipment in 2020, depreciate it through 2027, sell it in 2030, and the acquisition documents from 2020 remain relevant into the mid-2030s. You need them to compute gain or loss, and to handle depreciation recapture. Publication 946 is the reference for how that accumulated depreciation is tracked.
For real estate the horizon is longer still, and the stakes are higher, because basis records determine the taxable gain on a sale decades later. A cost segregation study, once performed, belongs in permanent storage alongside the closing documents.
What we suggest keeping permanently
Some documents have no useful expiry, and the cost of keeping them is a folder:
- Formation documents, bylaws, operating agreements, and amendments
- Ownership records, stock ledgers, and buy-sell agreements
- Filed tax returns themselves — as distinct from the supporting records
- Property and major asset acquisition records, including improvements
- Retirement plan documents and determination letters
- Any settlement, judgment, or resolved dispute
Filed returns deserve special mention. The supporting receipts can go on schedule, but the return itself is small, and it is the document that proves a filing was made — which is precisely what closes the indefinite exposure described above.
Other authorities have their own clocks
The IRS is not the only party with a claim on your records. Lenders and bonding companies often require several years of statements as a covenant. State tax agencies set their own limitation periods, some longer than the federal three years. Employment law creates separate obligations for personnel files. And industry regulators — contractor licensing boards, healthcare privacy rules — impose retention requirements independent of tax.
Publication 583 makes the general point: the burden is on you to produce records supporting what you reported. Choose the longest applicable period, not the shortest.
A workable policy
Scan everything and keep it. Storage is effectively free, and the marginal cost of retaining a document past its required period is nearly zero — while the cost of having discarded one is an unsupported deduction.
If you do purge, do it deliberately: an annual review each spring, after the return is filed, working from a written schedule rather than intuition. And confirm your accounting system’s backups actually restore. A retention policy that depends on a software subscription you stop paying for is not a policy.