A common question among small business owners is how long they should keep old reports, copies of invoices, and other bits of accounting information. Although there are other situations to consider, these are your legal tax accounting requirements:

By law, a business is required to maintain accounting records in order to report its profits, losses, income, and deductions to the IRS. This means that anything that you need to substantiate elements of your calculations should be maintained. However, the statute of limitations typically runs three years from the date you filed the return.

This means that in most cases, you don’t need to keep paperwork that’s any older than three years past the return that it relates to. In other words, if you have data from 2003 and you filed the year 2003 tax return on March 15, 2004, by March 16, 2007, you shouldn’t (in most cases) need to keep all of that old paperwork. The statute of limitations dictates that at that point, you should be able to discard the old stuff.

There are a couple of exceptions to this three-year limitation, however:

• If you’ve been really sloppy and through your sloppiness omitted gross income in excess of 25 percent of what your return shows, the statute of limitations equals six years.
• If no return is filed or a fraudulent return is filed, there is no statute of limitations.