What records do I need to keep for an IRS audit?
IRS audit records are the books, receipts, invoices, contracts, and supporting documentation a business is required to maintain to substantiate items on filed tax returns.
Quick answer
Medical practices should keep complete tax records for at least 3 years (general statute of limitations), 6 years for substantial understatements, and indefinitely for assets, retirement plans, and HIPAA-related documentation.
The detail
IRS Publication 583 sets recordkeeping baseline. The general statute of limitations is 3 years from the return filing date; this is the minimum retention period for most records. The statute extends to 6 years if the taxpayer omits more than 25 percent of gross income. There is no statute of limitations for fraudulent returns or unfiled returns. Assets (equipment, real estate, leasehold improvements) require records as long as you own the asset plus 3 years after disposition, because basis affects gain or loss. Retirement plan records typically require permanent retention for plan documents and 6 years for participant data under ERISA. HIPAA requires medical record retention for at least 6 years after creation or last use, though state requirements often extend this (commonly 7 to 10 years). Practical recommendation for medical practices: keep all bank statements, deposit records, payroll registers, AP invoices, fixed asset detail, and tax returns indefinitely in digital form. Storage cost is negligible; reconstructing destroyed records under audit is almost impossible.
General IRS statute of limitations is 3 years from return filing date; extends to 6 years for substantial understatements.
Source: IRS Publication 583
HIPAA requires medical record retention for at least 6 years after creation or last use.
Source: HHS HIPAA Rules
Asset records must be retained as long as the asset is owned plus 3 years after disposition.
Source: IRS Publication 583
What this means for clinic owners
From Sorso
Digital storage is cheap. Retain all financial records indefinitely. The only audit defense that works is producing original documents on demand. Reconstructing them after the fact almost never satisfies an examiner.
Related questions
How much does healthcare accounting cost per month?
Outsourced healthcare accounting typically costs $1,500 to $5,000 per month for a single-location clinic, depending on transaction volume, locations, and whether you need controller-level oversight.
What tax deductions are available to medical practices?
Medical practices can deduct ordinary business expenses including staff wages, rent, equipment depreciation, supplies, malpractice insurance, CME, retirement plan contributions, and qualified business income (QBI) where eligible.
What is Section 179 for medical equipment?
Section 179 lets medical practices immediately expense up to $2.5M of qualifying equipment placed in service in the tax year (for tax years beginning after Dec 31, 2024, per OBBBA — Public Law 119-21, signed July 4, 2025; $2.56M for tax year 2026 per Rev. Proc. 2025-32), instead of depreciating it over multiple years.
How do I structure a practice for tax efficiency?
The most tax-efficient practice structure typically involves an S corporation or PLLC for the clinical practice, a separate LLC for real estate, an MSO for non-clinical services, and a defined benefit retirement plan, optimized to preserve QBI and balance payroll tax exposure.
Founder of Sorso. 19 years in corporate finance. Managed a $450M loan portfolio before building a fractional CFO firm exclusively for healthcare clinics.
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