The IRS generally has three years from the filing date to audit a return, extended to six years if gross income is understated by more than 25%, and unlimited for fraud or unfiled returns. New Jersey requires employers to retain payroll records for at least six years. For most NJ business owners, a seven-year retention policy for tax and financial records covers both federal and state requirements with a safety margin. Greg Monaco, CPA provides clients with a clear retention schedule during onboarding.
The answer varies by document type. Here’s a practical guide.
Tax Returns: 7 Years
IRS has 3 years to audit (6 years if income understated by 25%+). No limit for fraud or unfiled returns.
Financial Records: 7 Years
Bank statements, credit card statements, invoices, AP/AR records.
Payroll Records: 7 Years
NJ requires at least 6 years. I recommend 7 for alignment.
Entity and Legal Documents: Permanently
Articles of organization, operating agreements, meeting minutes, business licenses.
Property and Asset Records: Life of Asset + 7 Years
Purchase documentation, improvement records, depreciation schedules.
Digital Is Fine
Both IRS and NJ accept digital copies. Scan and store securely.
Key Takeaway
The general rule for NJ business owners is to keep tax returns and supporting financial records for seven years, entity and legal documents permanently, and property records for the life of the asset plus seven years. Both the IRS and NJ accept digital copies, so scanning and secure cloud storage is an efficient approach for long-term retention.
Related reading: What to Do If Your NJ Business Gets Audited | 7 Bookkeeping Mistakes | Tax preparation services
## Frequently Asked Questions
How long should I keep tax returns in NJ?
Keep federal and NJ tax returns permanently. While the IRS generally has three years to audit (six years for substantial understatements), your returns serve as historical records for amended filings, loss carryforwards, depreciation schedules, and asset basis calculations. The returns themselves take up minimal space and provide critical reference points for future tax planning.
How long does the IRS have to audit my return?
The IRS has three years from the filing date for standard audits, six years if gross income is understated by more than 25%, and unlimited time for fraud or unfiled returns. NJ follows similar timeframes. A seven-year retention policy for supporting documents covers both federal and state requirements with a reasonable safety margin.
What records should I keep digitally vs. on paper?
Digital records are acceptable for virtually all tax and business documentation. The IRS accepts digital copies of receipts, invoices, bank statements, and other records as long as they are legible and complete. Use cloud storage with automatic backup for reliability. Keep original paper documents only for items that may require originals, such as signed contracts, property deeds, or corporate formation documents.
Can I shred old business records?
You can shred records that have passed their required retention period, provided there is no pending audit, investigation, or litigation. The general guideline is seven years for most financial and tax records, six years for NJ payroll records, and permanently for tax returns, corporate documents, and property records. When in doubt, keep the records longer rather than risk destroying something you may need later.
