As seen in Philadelphia Business Journal
A: When it comes to retaining documentation, it depends on the document. There are some items that should never be purged. These include items that are hard to replace in the event they are asked for in later years, such as tax filings, capital stock ledgers, minute books of directors meetings, cash books and audit reports. Many other items such as vendor invoices, accounts payable ledgers, accounts receivable ledgers and payroll registers should be saved for seven years. The rule of thumb for bank statements, bank reconciliations, and duplicate deposit slips is generally three years. But keep in mind, this doesn’t mean that you have to keep all that paper. Retaining electronic documents is just as effective as keeping hard copies so long as they are secure. Remember, the reason we keep these documents in the first place is to support the day-to-day transactions that roll up into the financial statements and in turn are used to prepare and support a business’ tax filings. The IRS can audit tax returns filed for the past three years. The IRS has the right to audit back six years if a substantial error is noted. When in doubt, ask your accountant!