How Long to Keep Records — and What We've Found Worth Holding

The IRS clocks, in plain English

The IRS Code does not give a single answer to the question “how long?” It gives four answers, and which one applies depends on what happened in the year the return was filed. The list below is the order we use at our desks in Winston Salem and Valdosta when deciding whether a document folder can be retired, kept one more year, or held indefinitely.

• Three years (the audit window). Keep every supporting document for at least three years from the later of the original due date or the date you actually filed. The IRS generally has that long to examine a return and assess additional tax. This is the baseline that covers most individual filers most years.
• Six years (substantial omission). If you omitted more than 25% of gross income on the return, the assessment window extends to six years. This rule quietly applies to a lot of side income, especially 1099 work, gig-economy income, and brokerage interest that arrives the year after the bank sends the 1099-INT. When in doubt, six years is the safer default.
• Seven years (loss claims). Any year you claimed a deduction for a bad debt, a worthless security, or a net operating loss carries a seven-year retention floor because the loss can be carried forward or examined on its own. Most people hit this rule once and forget about it, then a year later the brokerage statement for the worthless security is exactly what the IRS asks for.
• Indefinitely. Unfiled returns, fraudulent returns, and any return on which you claimed a basis in property that affects a future sale (cost-basis documentation, original purchase records, inherited-property step-up records, like-kind exchange records) should be kept indefinitely. The IRS has no statute of limitations on fraudulent or unfiled returns, and basis records are essential at the moment of sale — not seven years later.

The papers we always keep, regardless of the clock

Some documents should not be retired at all even if the audit window has closed. The categories below are the ones we ask our NC and GA clients to hold onto by policy rather than by years, because each one comes up again at the moment of sale, refinance, insurance claim, or estate work.

• Brokerage statements. Both the year-end summary and the transactional monthly or quarterly statements. The year-end statement is what the broker reported to the IRS; the transactional statements are what prove the cost basis the year-end statement may not capture (reinvested dividends, return-of-capital, lot-level acquisitions, partial sales).
• W-2, 1099, and K-1 packets. Every wage statement, every 1099 (NEC, MISC, INT, DIV, R, K, G, and the reminder-letter crop like 1099-B and 1099-S), and every K-1 received from a partnership, S-corporation, or trust. The IRS matches these against your return. A missing 1099 is one of the top three reasons individual clients receive CP2000 notices.
• Real-estate closing papers and depreciation schedules. The HUD-1 / Closing Disclosure, the original purchase agreement, any cost-basis addback invoices (legal fees, recording fees, transfer taxes at purchase), and the depreciation schedule from the year the property was placed in service. These are the documents that determine gain or loss on every future sale and that support any Section 121, 1031, or depreciation recapture calculation.
• Retirement-account Form 1099-R and basis trail. Each 1099-R issued by an IRA custodian, former employer 401(k) plan, or pension plan, plus the year-by-year contribution history that establishes the basis portion (Box 1 minus Box 2a / Box 5). Without the basis trail, every future distribution defaults to fully taxable.
• Business-entity returns and supporting schedules. Form 1120-S (S-corporation), Form 1065 (partnership), Schedule M-3 for larger entities, balance sheets, the owner's reasonable-compensation analysis, and the fixed-asset register or depreciation schedule. These feed the owner's Schedule E and any QBI calculation every year going forward, and most of them are revisited at sale or transfer of ownership.
• Payroll ledgers and employment-tax filings. Quarterly Form 941 records, annual Form 940 (FUTA), state withholding returns (NC-4 or GA G-7), W-2 transmittals (W-3), and the per-employee ledger showing gross wages, withholdings, and the deposit history. Payroll issues usually surface two to three years after the fact, and the only way to defend a deposit reconciliation is with the original ledger.
• Mileage and contemporaneous logs. The IRS requires a contemporaneous mileage log for any business-vehicle deduction. A spreadsheet rebuilt at tax season from memory does not satisfy the rule. Apps that capture mileage automatically (and the monthly export they produce) generally do.
• Charitable receipts and acknowledgments. A bank record alone is no longer sufficient for non-cash contributions over $250 or for any contribution where you intend to claim a deduction. Keep the contemporaneous written acknowledgment from the charity, and for any single contribution over $500 in non-cash property, the qualified appraisal as well.

Digital or paper — what we actually install for new clients

Most of our NC and GA clients have moved to digital-first recordkeeping rather than complete paper files. The IRS has explicitly accepted electronic records for decades and even built a portal into its own system for secure upload of supporting documents. The tools below are the ones we install and use most often when we onboard a new client, and they combine to make year-end document collection take hours rather than the week it used to take with a paper shoebox.

• Dext (formerly Receipt Bank). Snap or email receipts; the OCR engine extracts vendor, date, amount, and tax; the items flow into QBO, Xero, or a QuickBooks-class file. Excellent for 1099 work and contractor expense tracking.
• Hubdoc. Similar to Dext: fetch-source model pulls bills and statements directly from many vendors. Pairs especially well with Xero. The captured documents become the source-of-truth at year end.
• Expensify. Strong for employees and reimbursable expenses; the SmartScan receipt reader and the corporate-card sync save substantial data entry. We use it most often for small businesses with several cardholders.
• IRS Document Upload Tool 911. The IRS's official portal for uploading documents in response to a notice or letter. Use it when you receive a CP2000, an examination request, or any balance-due letter that asks for documentation. Secure, encrypted, and the response is logged into the same case file the IRS opened.

The five-point gate we run right after filing

Use this short list once a year, usually right after filing, as the gate between “do we keep this?” and “this can be shredded or deleted.”

1. Filed and accepted? The three-year clock starts on the later of the original due date and the date the return was actually filed. Confirm acceptance (e-file ack, transcript pull) before letting anything go.
2. Any 25%-of-income miss, undisclosed side income, or sizable unreported 1099? Treat that year as a six-year case. Keep broker statements and a reconciled 1099 pack.
3. Any loss-claim year (bad debt, worthless security, NOL)? Hold the supporting documents to year seven. The loss can be carried forward long after the audit window has closed.
4. Any property, basis, or K-1 issue that will matter at sale? Great-grandparent stock inheritance, rental property bought in 2014, partnership K-1 with a Section 199A box, like-kind exchange replacement property. Mark those folders permanent.
5. Any business in a state with its own longer retention rule? North Carolina and Georgia generally follow the federal windows, but some payroll and sales-tax records have specific state-side floors. Keep state-specific records to the longer of the two.

If you're unsure, hold it one more year

The default answer we give when a client asks whether to hold onto a document for one more year is “yes.” The marginal cost of keeping a PDF in a cloud folder is tiny; the cost of not having the document you need when the IRS or a lender asks for it can be a real number. The rule we use in our own offices is straightforward — if the document supports a return, a basis number, a payroll filing, or an investment position, and there is any plausible reason it might matter in the next ten years, the document stays. A small amount of friction in storage is much cheaper than reconstructing a paper trail after the fact.