How Long Do You Have to Keep Company Records?

by Fraser Sherman; Reviewed by Michelle Seidel, B.Sc., LL.B., MBA; Updated March 09, 2019

While old files might contribute to your clutter, you can't just throw them away. Even if you never use them or reference them, the law might not allow you to toss them in the shredder. Depending on the type of file and the relevant laws, you might have to keep them anywhere from one year to three years to forever.

The IRS Rules

The IRS recommends you keep most tax-related records for three years. That's how long the IRS can look back for an audit if everything in your business is above board. If the IRS suspects you've under-reported income by more than 25 percent, it can audit you up to six years back, so it might be safer to use that as the timeline. Records include not only tax returns, but also whatever receipts, bills or payment records prove that your return is accurate.

You have to keep some files longer than three years. For employment tax records, the IRS recommends four years. If you have a business property you're depreciating or amortizing, keep the records until three years after the date you finally dispose of the property.

State Retention Requirements

States have tax laws too, and some of them require a longer holding period than the IRS does. California, for example, gives itself four years to audit your state tax returns, possibly longer if you're subject to a federal tax audit. If the state suspects you of fraud, the deadline can stretch out to twelve years.

Special Records Rules

State and federal laws set different requirements for some types of records. Virginia, for example, requires doctors to keep patient medical files for six years, unless the patient switches doctors. If the patient is a child, the medical practice has to keep the files until the patient turns 18.

Your Insurance Files

Insurance files can be a special case. Negative effects of manufactured products or on-the-job injuries might not be obvious at first. It might take years for an employee to discover, for example, that products manufactured at your factory gave him cancer. Once the employee learns of the connection, he can file a claim or lawsuit for compensation.

You'll need records to show that you had occurrence-based insurance at the time you were producing the cancer-causing products, so hang on to the relevant files indefinitely. Other types of policies don't need such a long holding period.

Company Personnel Files

Companies often get in trouble when choosing who to hire, who not to hire, who to fire or who to promote, which is why federal law applies to those records too. Generally, you have to store personnel files for a year. If you fire someone, keep those files for a year after termination. You must keep payroll records for three years.

If your company doesn't pay men and women equally, you need to document the reasons and keep those records for at least two years. State laws may set longer periods.

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