The IRS expects you to keep records that support everything on your tax return. That means documentation for all income you reported and every deduction you claimed.

Income records include bank statements showing deposits, invoices you sent to customers, credit card processing statements, and point of sale reports. If money came into your business, you need proof of where it came from and how much.

Expense records cover receipts, cancelled checks, credit card statements, and invoices from vendors. For expenses over $75, the IRS specifically wants receipts. For smaller purchases, credit card or bank statements showing the vendor, date, and amount are generally acceptable. The key is being able to show what you bought and that it was a legitimate business expense.

Asset documentation matters for anything you depreciate. Vehicles, equipment, computers, furniture. Keep the original purchase documentation showing what you paid and when you bought it. You’ll need this to calculate depreciation each year and to figure gain or loss if you ever sell or dispose of the asset.

Payroll records include W-2s, quarterly 941 filings, state withholding reports, and records showing hours worked. Payroll services typically maintain these records, but you should have copies stored with your other business documentation.

Business formation documents like your articles of organization, EIN confirmation letter, and operating agreements should be kept indefinitely. These don’t come up in routine audits but you may need them for banks, lenders, or legal matters.

How long you keep records depends on what they document. The general rule is three years from when you filed the return. Keep records for six years if there’s any chance you underreported income by more than 25%. Employment tax records need to stay on file for at least four years. Asset records should be kept until you dispose of the asset, then three more years after the disposal shows up on a return.

Go digital when possible. Scan paper receipts and store them in organized folders by year. Paper fades, gets lost, and becomes illegible over time. Digital files are searchable and don’t take up physical space in your office.

Use a dedicated business bank account and credit card. When all business transactions flow through accounts you can easily reconcile, your statements become strong backup documentation even if some receipts go missing.

Reconcile monthly. Keeping records isn’t just about having documentation. It’s about being able to find and make sense of it years later. Working with a Tri-Cities bookkeeper ensures your records stay organized throughout the year so you’re always prepared if the IRS has questions.