Record Retention Guidelines

What to Do with Your Income Tax Records

Are you ready for a major housecleaning but not sure how long you should keep old income tax records? Before throwing away important income tax documents, consider these guidelines. 

Federal income tax regulations require you to keep your records as long as they can be material to the administration of the tax law. 

The retention periods apply to records needed to substantiate your federal income tax return and are based on the federal statute of limitations, which is normally three years. This means the IRS could audit your return up to three years from the due date of the tax return or the date of filing, whichever is later. However, if you substantially underreport income, fail to file a return or file a fraudulent return, the statute of limitations could be much longer. 

In addition, some states have a statute of limitations that exceeds the federal statute or have laws or regulations that require taxpayers to maintain records beyond the state’s statute of limitations, often to verify carryovers, etc. 

Tailor your retention period to the longer of the federal or state requirements. In deciding your own record retention schedule, consider indefinitely keeping those records that cannot be recreated by any other office, institution or governmental unit. Also keep your own financial concerns in mind when determining how long to retain your records. Most importantly, consult with your attorney for approval of any record retention policy.

Statute of Limitations for Income Tax Assessments & Minimum Record Retention Periods for States Where BKD Has Offices1

Arkansas

Statute2: Three years

Minimum Record Retention Period: Arkansas requires records be kept for six years.

Colorado

Statute2: Four years

Minimum Record Retention Period: Colorado requires records be kept for four years.

Iowa

Statute2: Three years

Minimum Record Retention Period: Iowa requires records be kept for three years.

Illinois

Statute2: Three years

Minimum Record Retention Period: Illinois does not specify minimum record retention periods.

Indiana

Statute2: Three years

Minimum Record Retention Period: Indiana requires records be kept for three years.

Kansas

Statute2: Three years

Minimum Record Retention Period: Kansas does not specify minimum record retention periods.

Kentucky

Statute2: Four years

Minimum Record Retention Period: Kentucky requires tax payment records be maintained for seven years and all other income tax records for five years.

Mississippi

Statute2: Three years

Minimum Record Retention Period: Mississippi requires withholding records be kept for three years and does not specify a minimum for other tax records.

Missouri

Statute2: Three years

Minimum Record Retention Period: Missouri requires records be kept for four years.

Nebraska

Statute2: Three years

Minimum Record Retention Period: Nebraska does not specify minimum record retention periods.

New York

Statute2: Three years

Minimum Record Retention Period: New York requires records be kept for as long as they can become material in administering tax.

Ohio3

Statute2: Three years

Minimum Record Retention Period: Ohio requires records be kept for four years.

Oklahoma

Statute2: Three years

Minimum Record Retention Period: Oklahoma requires records be kept for three years.

Pennsylvania

Statute2: Three years

Minimum Record Retention Period: Pennsylvania requires corporate records be kept for three years and individual records for four years.

Tennessee

Statute2: Three years

Minimum Record Retention Period: Tennessee requires records be kept for three years from December 31 of the year in which the return was filed.

Texas4

Statute2: Four years

Minimum Record Retention Period: Texas requires records be kept for four years.

Utah

Statute2: Three years

Minimum Record Retention Period: Utah requires records be kept for three years.

Wisconsin

Statute2: Four years

Minimum Record Retention Period: Wisconsin does not specify minimum record retention periods.

1. Statutes can increase due to substantial understatements of income, failure to file a return or fraud.
2. Unless otherwise noted, the statute of limitations and record retention period apply to business and individual income tax returns.
3. Ohio statute of limitations and record retention period apply to the commercial activity tax and individual income tax.
4. Texas statute of limitations and record retention period apply to the franchise and gross margins tax.

Special Rules for Computer Records

The definition of books and records goes beyond hard copies when you maintain all or part of your accounting records on a computer. In general, record retention periods are the same for “machine-sensible” records as they are for their hard copy counterparts. 

A machine-sensible record is data in an electronic format intended for computer use. Machine-sensible records do not include paper records or paper records that have been converted to an electronic storage medium, such as microfilm, microfiche, optical disk or laser disk. Retrievability is important where machine-sensible records are concerned. Not only must certain records be maintained, but the IRS must have access to those records. This becomes especially burdensome when computer systems are upgraded or converted. 

If you or your business has more than $10 million in assets5 and you maintain all or a portion of your accounting records on a computer, the IRS requires your machine-sensible records be in a retrievable format that provides the information necessary to determine the correct income tax liability. This requirement applies even if your accounting system is maintained by a third-party service provider. To comply with this requirement, you must retain these specific documentation formats for all data files:

  • Record formats (including the meaning of all codes used to represent information)
  • System and program flowcharts
  • Label descriptions
  • Source program listings of programs that created the retained files
  • Detailed charts of accounts
  • Evidence that periodic tests are performed on the retained records to ensure they can produce the stored data
  • Evidence that retained records reconcile to the taxpayer’s books and tax return

If you or your business has less than $10 million in assets, the IRS requires you to conform to the above standards if (1) all or a portion of your books and records is only available in machine-sensible format, (2) machine-sensible records were used for complex computations (such as LIFO) or (3) you are notified by the IRS. 

5. Members of a controlled group of corporations are combined for this purpose.

Guidelines for Paper Records

Three Years (from Date of Filing Return or Due Date of Return, Whichever Is Later)

  • Bank deposit slips
  • Canceled checks
  • Daily sales records
  • Entertainment records
  • Expense reports
  • Paid vendor invoices
  • Written acknowledgment from charity for contributions of $250 or more

Six Years

  • Auto mileage logs
  • Bank statements
  • Contracts (after expiration)

Records to Retain Permanently

  • Annual financial statements
  • Corporate stock records
  • Partnership/LLC agreement and amendments
  • Operating agreement and amendments
  • General ledger and journals
  • Real estate records
  • Tax returns
  • Copy C of Form W-2 (until you begin receiving Social Security benefits)
  • LIFO inventory records

Other

  • Depreciation schedules (three years after disposal of asset)
  • Meeting minutes (life of company)
  • IRA contribution and distribution records (three years after final distribution)
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