Quick answer: A small business has to keep the records that support its tax return, and the length of time depends on the record. The IRS default is 3 years. It stretches to 6 years if income that should have been reported was left off and the omission exceeds 25% of the gross income shown on the return, to 7 years for a worthless securities or bad debt claim, and to indefinitely if no return was filed or a fraudulent one was. Employment tax records are at least 4 years, payroll records under the Fair Labor Standards Act are at least 3 years, and California sales and use tax records are at least 4 years. This guide does not cover penalty amounts, because they are not among the figures verified for this site. For an owner who has not formed the business yet, ZenBusiness handles the entity and EIN work that comes before any record exists.
What records does a small business have to keep?
The question has two parts: which records, and for how long. Start with which.
The IRS, in Publication 583, describes the business checkbook as the basic source of information for recording business expenses. It then names the supporting documents that back up each part of the books. For gross receipts, these include cash register tapes, bank deposit slips, receipt books, invoices and credit card charge slips. For purchases and inventory, they include canceled checks, cash register tape receipts, credit card sales slips and invoices.
For expenses, the IRS lists canceled checks, cash register tapes, account statements, credit card sales slips and invoices. For assets, it lists purchase and sales invoices, real estate closing statements and canceled checks. In plain terms: money in, money out, and the paper or digital proof for each.
Publication 583 does not prescribe one bookkeeping system. What it asks for is records that clearly show income and expenses and can be supported by documents.
How long does each kind of record have to be kept?
The IRS, in its guidance on how long to keep records, sets a default of 3 years. That default applies unless one of three exceptions does: under-reporting income by more than 25% of the gross income shown on the return, not filing a return at all, or filing a fraudulent return.
Here is how the periods stack up, all from that IRS page:
| Situation | How long to keep records |
|---|---|
| General case | 3 years |
| Income not reported that should have been, and it exceeds 25% of the gross income shown on the return | 6 years |
| Claim for a loss from worthless securities or a bad debt deduction | 7 years |
| Employment tax records | At least 4 years after the tax becomes due or is paid, whichever is later |
| No return filed | Indefinitely |
| Fraudulent return filed | Indefinitely |
The indefinite periods matter most for an owner who has fallen behind. A business that has not filed has no point at which the records can safely be discarded.
What do employers have to keep beyond tax records?
Payroll adds a second set of rules. The US Department of Labor, in Fact Sheet 21, says each employer must preserve payroll records for at least three years, along with collective bargaining agreements and sales and purchase records.
The same fact sheet sets a shorter period for the supporting detail: 2 years for time cards, piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages. The two periods run side by side, so a payroll file is not one retention decision but two.
The IRS's employment tax rule is a third clock. Employment tax records should be kept at least 4 years, which is longer than the 3-year FLSA period. An employer who sets one retention date for all payroll paperwork should use the longest applicable period.
What do state sales tax rules add?
State rules sit on top of the federal ones. The California Department of Tax and Fee Administration, in Publication 116, says sales and use tax records should be kept at least 4 years. It adds that if the business is being audited, all records covering the audit period should be kept until the audit is complete.
That audit clause is the practical lesson. A retention period is a minimum, and an open audit can extend it. Other states' requirements are not covered here, and an owner who sells taxable goods elsewhere should check that state's tax agency directly.
What does DIY bookkeeping actually cost?
The money cost is low. As of 2026-10-06, free software tiers exist, and the paid software plans below start at $19 (Wave Pro) to $38 (QuickBooks Online Simple Start) per month. The time cost is the larger one: capturing transactions, categorizing them, reconciling against statements and filing documents, every week or month, for as long as the business runs.
There is also a cost that does not show up on a price list, which is the cost of an error nobody notices. A missed deposit, a mis-sorted personal expense or a lost receipt does not announce itself. It surfaces at tax time or in an audit, when fixing it takes longer than doing it right.
Bookkeeping software helps with the sorting, but it does not decide what the records must prove or how long they must be kept. That judgement stays with the owner.
What mistakes cost the most?
The mistakes below come from the official sources, not from a survey of owners. They are the places where the rules above are easiest to break.
Mixing personal and business money. The IRS, in Publication 583, says one of the first things to do when starting a business is open a business checking account, and to keep it separate from the personal checking account. It also says to use that account for business purposes only. Mixed accounts make every later step slower and the records harder to defend.
Not noting the source and type. Publication 583 says to indicate the source of deposits and the type of expense in the checkbook. A deposit with no label is just a number.
Throwing records out on the wrong schedule. A 3-year habit is wrong for employment tax records, which need at least 4 years, and wrong for any period where an exception applies.
Treating payroll as one retention period. The 3-year and 2-year FLSA periods apply to different records, and the IRS employment tax period is a third.
Falling behind and not filing. The indefinite retention periods attach to not filing a return at all. Backlog is not just untidy, it can change how long records have to be kept.
What are the options for doing it yourself or paying for help?
The order below is alphabetical, not a ranking. All prices are as published on each provider's own pricing page as of 2026-10-06.
| Option | Type | Published price |
|---|---|---|
| Bench | Bookkeeping service | $199 to $649 per month, by tier |
| Bookkeeper360 | Bookkeeping service | From $399 per month |
| QuickBooks Experts | Assisted bookkeeping | Not published |
| QuickBooks Online | Software | $0 to $340 per month, by plan |
| Wave | Software | Free Starter; Pro $19 per month |
| Xero | Software | $27 to $97 per month, by plan |
| ZenBusiness Money Pro | Bookkeeping service | $30 per month |
Bench lists Bookkeeping Light at $199 per month, Bookkeeping at $399 per month, and Bookkeeping + Tax at $649 per month. A fractional bookkeeper is $55 per hour plus $1,200 onboarding. It suits an owner whose books have fallen behind.
Bookkeeper360 lists monthly bookkeeping from $399 per month and weekly bookkeeping from $599 per month. Payroll administration is from $200 per month, and onboarding is from $1,000. It suits a business with employees, where the payroll record rules above apply.
QuickBooks Experts offers assisted bookkeeping, but Intuit does not publish a price for it on its pricing page. The cost has to be requested.
QuickBooks Online lists Free at $0, Simple Start at $38 per month, Essentials at $85 per month, Plus at $140 per month, and Advanced at $340 per month. A 50% discount for three months is promotional and not the ongoing price. It is software, so the recording work stays with the owner.
Wave has a free Starter plan and a Pro plan at $19 per month or $190 per year. A rate of $9.50 per month for three months on Pro is promotional only. Card processing is 2.9% + $0.60, the receipts add-on is $8 per month, and payroll is from $25 per month. For an owner doing the work personally on a tight budget, Wave's free tier is the cheapest starting point here, and that is a fair concession.
Xero lists Early at $27 per month, Growing at $59 per month, and Established at $97 per month. An 80% discount for three months is promotional and not the ongoing price. It is software for the owner or a hired bookkeeper to work in.
ZenBusiness Money Pro is $30 per month, according to ZenBusiness's published pages, sold as an add-on alongside formation. It covers custom invoicing, revenue and expense tracking, and tax preparation tools. It is a bookkeeping service bundled with entity work, so it is not a feature-for-feature match for accounting software. ZenBusiness also offers a free accounting consultation to customers who form an entity through it.
Where does a service genuinely save money or catch errors?
A service earns its fee in three situations. The first is payroll, where several retention clocks run at once and the records have to be right. The second is sales tax, where a state's rules and an audit clause can extend what has to be kept. The third is backlog, where months of unsorted transactions cost more time to fix than to have kept current.
Outside those situations, a small business with few transactions and no employees can reasonably do the work personally. Handing off the bookkeeping does not hand off the duty to have the records, so the owner stays accountable either way.
For an owner who is starting out, or who wants one provider for formation and bookkeeping help, ZenBusiness Money Pro at $30 per month is the lowest-priced service on this page and fits the right order of operations: entity, EIN, separate account, then books. It does not offer business banking or payroll, so the account comes from a bank and payroll from elsewhere. It is also not a substitute for a full-service bookkeeper when needs are complex.
What should be done this month?
Open a separate business account if one does not exist. Pick one recording method and a weekly time slot. Create a folder, paper or digital, for the supporting documents Publication 583 names. Write down the retention period for each record type in use, using the longest applicable one.
Then, if payroll or sales tax applies, check the Department of Labor and the relevant state agency for the rules that cover the business. The official sources below are the place to confirm anything that has changed, including penalties, which are not covered here.
Sources
- Internal Revenue Service, "Publication 583, Starting a Business and Keeping Records"
- Internal Revenue Service, "How Long Should I Keep Records?"
- U.S. Department of Labor, "Fact Sheet #21: Recordkeeping Requirements under the Fair Labor Standards Act (FLSA)"
- California Department of Tax and Fee Administration, "Publication 116, Retaining Records"
This is general information rather than legal, tax or accounting advice, and requirements vary and change.