"How long do we need to keep certain records and what do we need to keep?"

The federal tax laws require taxpayers to maintain books of account or records to support amounts reported on tax returns. The general rule is that such books and records must be kept as long as they may be relevant to a taxpayer's claim for a tax credit or refund or to an IRS attempt to assess additional tax for the year in question.

The specific rules relating to the length of time such books and records must be kept are quite detailed. Following is a list of recommended retention periods published in one of our financial and tax services that can be used as a general guideline. In some cases, the retention period recommended may be for nontax reasons--for example real estate records should be kept forever for environmental liability exposure reasons.

  Copies of tax returns as filed Forever
  Tax and legal correspondence Forever
  Audit reports Forever
  General ledger and journals Forever
  Financial statements Forever
  Contracts, leases & real estate records Forever
  Corporate stock records and minutes Forever
  Bank statements, deposit slips & cancelled checks 7 years
  Sales records and journals 6 years
  Other records relating to revenue 6 years
  Employee expense reports and records relating to travel and entertainment expenses 6 years
  Paid vendor invoices 6 years
  Employee payroll expense records 6 years
  Inventory records 6 years
  Other records relating to expenses 6 years
  Depreciation schedules & other capital asset records Tax life of asset + 3 years

If the IRS can show a significant understatement of gross income on the return, the statute of limitations can be extended from three to six years.