S‑Corp Recordkeeping: What to Keep and How Long

Strong recordkeeping is the backbone of clean S corporation tax compliance and audit readiness. The IRS does not mandate a single bookkeeping system, but your records must clearly show income, expenses, payroll, and items reported on returns. Keeping complete, organized records helps you prepare accurate returns, substantiate positions during examinations, and track items like asset basis and depreciation over time IRS Recordkeeping.

Core financial records to keep (income, expenses, banking)

• Maintain books that summarize transactions (journals and ledgers) and reconcile them to your business checking account; your books must show gross income as well as deductions and credits IRS Recordkeeping.

• Retain supporting documents for gross receipts (cash register tapes, deposit slips, receipt books, invoices, Forms 1099) and for purchases/expenses (canceled checks/EFT proofs, receipts, credit card statements, invoices, bills) sufficient to identify the payee, amount, date, and business purpose IRS Recordkeeping.

• Keep asset records (purchase invoices, real estate closing statements, improvement costs, depreciation schedules, and sale documents) to track basis, depreciation, section 179, casualty losses, and disposition (selling price and sale costs); the same standards apply to electronic records as to paper IRS Recordkeeping.

Payroll and employment tax records

• Retain employer tax filings and deposits—Forms 941 (quarterly), 940 (annual FUTA), W‑2/W‑3, and payment confirmations (EFTPS or other). Employers must keep employment tax records for at least four years after the tax becomes due or is paid, whichever is later IRS Recordkeeping.

• Maintain detailed payroll records for each employee (including corporate officers), showing wages, tax withholdings, and benefits; keep underlying support (time summaries, payroll registers, compensation agreements) to substantiate reported amounts and deposits IRS Recordkeeping.

Federal returns and supporting documents

• Keep a complete copy of filed Form 1120‑S (including all schedules, statements, Schedules K‑1, and K‑2/K‑3 if applicable) and the workpapers supporting the return (trial balances, book‑tax adjustments, depreciation schedules). S corporations that file 10 or more returns of any type during the calendar year are required to e‑file Form 1120‑S; keep the same supporting records regardless of filing method 2024 Instructions for Form 1120‑S.

• Maintain shareholder K‑1 delivery confirmations and any supplemental information provided to owners to facilitate their personal filings 2024 Instructions for Form 1120‑S.

California corporate tax filings (if applicable)

• Retain copies of the filed California Form 100S and supporting schedules/workpapers; California has state‑specific rules and e‑file requirements, so keeping the state package alongside the federal package streamlines responses to inquiries 2023 Form 100S Booklet.

• Keep California corporate tax payment records (Web Pay confirmations, estimated tax vouchers) with your state return files to substantiate payments and credits 2023 Form 100S Booklet.

• Note California’s updated business e‑file mandates (aligned with federal thresholds) effective for returns beginning on or after January 1, 2025; waivers may be available for hardship FTB Tax News (Dec 2025): Federal Conformity SB 711.

Audit readiness: organize and understand what might be requested

• Organize records by year and issue. Common records requested during audits include receipts (with notes on purpose and business linkage), bills, canceled checks, legal papers, loan agreements (including interest statements and use of funds), logs/diaries (e.g., mileage, travel), tickets, employment documents, and Schedules K‑1. Send copies (not originals) and include context for each document FTB Notices and Letters—Audit Resources.

• Know the basic audit process and your rights. Audits may be initiated by mail or in person, and typically examine returns filed within the last three years (up to six years if substantial errors are found). Keep records long enough to cover the statute of limitations and to substantiate items on your returns FTB Notices and Letters—Audit Resources.

How long to keep records (retention guide)

• General rule: Keep records that support income, deductions, or credits shown on your return until the period of limitations runs (usually three years from when you filed; longer in certain cases). Keep employment tax records at least four years after the tax becomes due or is paid. Keep property records until the period of limitations for the year of disposition expires because they impact basis, gain/loss, and depreciation IRS Recordkeeping.

• Examples: Three years in most situations; six years if you omitted more than 25% of gross income; seven years for claims relating to worthless securities or bad debt; indefinitely if no return was filed or a fraudulent return was filed IRS Recordkeeping.

• Practical tip: Keep copies of filed returns (federal and state) because they help prepare future filings, amend prior returns, and provide proof in many contexts IRS Recordkeeping.

What recordkeeping generally isn’t necessary (and common pitfalls)

• No “special” format required: The IRS accepts any recordkeeping system—hard copy or electronic—that clearly shows income and expenses; focus on clarity and completeness rather than duplicative systems IRS Recordkeeping.

• Avoid unnecessary duplicates: Maintain a well‑organized single set of support for each item rather than redundant files; organize by year and topic to streamline audit response FTB Notices and Letters—Audit Resources.

• Don’t keep records longer than needed: Retain records for applicable limitation periods and for asset lives, but it’s not necessary to retain routine records forever once periods have expired and items no longer affect open years or undepreciated assets IRS Recordkeeping.

• Don’t mail originals to tax authorities: Send copies only during audits or correspondence; originals should be retained securely in your files FTB Notices and Letters—Audit Resources.

• Ensure electronic record backup and access: The same standards apply to electronic records as to paper—completeness, accuracy, and the ability to produce them on request IRS Recordkeeping.

Checklist to be ready for tax season and audits

• Books (journals, ledgers), reconciled bank statements, and year‑end trial balance IRS Recordkeeping.

• Organized support for income and expenses (receipts, invoices, bills, credit card statements, canceled checks/EFT proofs) with clear business purpose IRS Recordkeeping.

• Asset files (purchase/improvement documents, depreciation schedules, disposition details) IRS Recordkeeping.

• Payroll/employment tax filings, deposit proofs, and detailed wage records; retain at least four years IRS Recordkeeping.

• Complete copies of filed federal Form 1120‑S and Schedules K‑1; if applicable, include California Form 100S and payment confirmations 2024 Instructions for Form 1120‑S; 2023 Form 100S Booklet.

By maintaining complete, well‑organized records tied directly to what you report, you’ll streamline tax season, minimize the risk of adjustments, and be prepared to respond quickly to any audit request FTB Notices and Letters—Audit Resources.