How long do you really have to keep all those receipts, bank statements and payroll files? For most small businesses in New York the answer is shorter than you have probably heard, with a few important exceptions. Here is the IRS rule, the New York rule, and what we tell our own clients.
The short answer: Keep most business tax records for at least 3 years after you file, which covers both the IRS and New York State. Keep payroll records 6 years under New York labor law, records for assets until 3 years after you sell them, and everything forever for any year you did not file. If you underreported income by more than 25%, the IRS gets 6 years.
The chart: how long to keep each record
| Record | Keep at least | Rule |
|---|---|---|
| Income tax returns plus receipts, bank and card statements, invoices | 3 years after filing | IRS general rule; NY Tax Department general rule |
| Records for a year you left out more than 25% of gross income | 6 years | IRS |
| Bad debt or worthless securities deduction | 7 years | IRS |
| Federal employment tax records (941s, W-2s, W-4s) | 4 years after the tax is due or paid, whichever is later | IRS |
| New York payroll records (hours, pay rates, gross wages, deductions) | 6 years | NY Labor Law Section 195(4) |
| NY sales tax records (every sale, tax charged, exemption and resale certificates, purchases) | 3 years from the return's due date or filing date, whichever is later | NY Tax Department |
| Property, vehicles and equipment (purchase price, improvements, depreciation) | Until 3 years after the year you sell or dispose of it | IRS |
| Any year you never filed, or filed a fraudulent return | Indefinitely | IRS |
| Formation papers, EIN letter, S corp election, operating agreement | Life of the business | Practical rule |
Our practical rule for clients: keep everything 7 years, keep payroll and asset files longer, and keep it all digital.
Is it really not 6 years for New York taxes?
You will see claims online that New York requires businesses to keep all tax records for six years. For most tax records, that is not what the New York State Department of Taxation and Finance says. Its general rule is to keep records and supporting documents for at least three years after you file a return, and for sales tax, at least three years from the due date of the return or the date you filed it, whichever is later. If a sales tax matter is still open with the Department, keep the records until it is resolved.
The six-year rule in New York is real, but it is for payroll. Labor Law Section 195(4) requires employers to keep accurate payroll records for each week worked for at least six years.
What counts as a business record?
- Proof of income: invoices, sales reports, deposit records, and the 1099-NEC and 1099-K forms you receive.
- Proof of expenses: receipts, bills, canceled checks and card statements. Add a one-line note on the business purpose for meals, travel and anything unusual. A card statement alone often is not enough to keep a deduction in an audit.
- Mileage log: date, miles and purpose for each business trip if you deduct vehicle use.
- Payroll: timesheets, pay rates, the written pay notice New York requires at hire, pay stubs and payroll tax filings.
- Sales tax: every sale and the tax charged, plus exemption and resale certificates.
- Asset files: purchase documents and depreciation schedules for equipment, vehicles and property.
Can I keep records digitally?
Yes. The IRS and the New York Tax Department both accept electronic records as long as they are complete, readable and you can produce them on request. Scanned receipts are fine. New York adds that electronic records must stay accessible to the Department even if you also keep paper copies. For large asset purchases, keep the originals too if you can.
BIB Pro scans your receipts, imports bank statements and keeps a mileage log in one place, so your records are ready if New York or the IRS ever asks.
What happens if records are missing?
Without records, you can lose deductions you were entitled to. For sales tax, New York can estimate what you owe from other information and add penalties and interest, and failing to keep or produce sales tax records can bring a penalty of up to $1,000 for the first quarter and up to $5,000 for each later quarter.
If your books are behind, it is fixable. Catch-up bookkeeping rebuilds missing months from your bank and card statements so your records line up before the next filing.
Before you shred anything
- Check the year. Returns filed more than 3 years ago are generally past the normal IRS and New York window.
- Pull out the exceptions first: payroll (6 years in New York), asset purchases you still own, and any year with an open audit, notice or unfiled return.
- Scan before you shred anything you might want later.
- Ask your lender and insurer. They can require records longer than the tax rules do.
Get help keeping your records straight
London's Tax Services keeps books and files taxes for small businesses and self-employed people across Westchester County, the Bronx and New York City from our office at 75 South Broadway, 4th Floor, in White Plains. If you are not sure what to keep, book a free 15-minute call or call (646) 917-7714.
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