The IRS Loves Paperwork—Here’s What You Need to Keep

Tax time is fun for exactly no one—unless your idea of fun involves endless stacks of receipts, digging through old files, and deciphering IRS jargon. But keeping the right records isn’t just about surviving tax season; it’s about saving yourself from unnecessary headaches (and possibly an audit).

The IRS loves paperwork, and as a responsible business owner, you should too—at least, the right paperwork. Let’s break down exactly what you need to keep, how long to keep it, and how to keep it organized.

Why Good Record-Keeping Matters

Imagine the IRS knocks on your door (hopefully metaphorically) and asks you to prove your income, expenses, and deductions from three years ago. Would you confidently pull out a well-organized folder of financial records, or would you panic while searching through piles of old receipts, hoping your dog didn’t eat last year’s tax return?

Good bookkeeping records:

✔ Help you accurately file your taxes and claim deductions.

✔ Make IRS audits less terrifying because you have proof for everything.

✔ Keep your finances in check so you know where your money is going.

✔ Help secure business loans by showing clear financial history.

✔ Save you from last-minute scrambles (because nobody likes scrambling, except maybe eggs).

What Financial Documents You Need to Keep

Not all paperwork is created equal. Here are the essentials you should always keep for your business:

1. Income Records (To Prove You Actually Made Money)

• Sales receipts

• Invoices issued

• Bank deposit slips

• Copies of customer payments (checks, PayPal, credit card transactions)

• Business revenue reports

  
  

Why? The IRS wants to see where your income comes from to ensure you’re reporting all taxable earnings. Missing records = missing income = potential IRS trouble.

2. Expense Records (To Prove You Spent Money Legitimately)

• Receipts for business purchases

• Credit card and bank statements

• Canceled checks

• Utility bills (if claiming a home office deduction)

• Travel and meal receipts for business expenses

• Business insurance payments

  
  

Why? Deducting expenses without proof is like trying to return an item without a receipt. The IRS wants documentation, not just your best guess.

3. Payroll and Employee Records (For Business Owners with Staff)

• Payroll records

• W-2s and W-3s for employees

• 1099 forms for contractors

• Time tracking logs

• Benefits and retirement plan contributions

  
  

Why? Employment tax audits happen. Keep these records for at least four years to cover yourself.

4. Tax Returns and Supporting Documents

• Copies of filed tax returns

• Tax payment receipts

• 1099 forms (if you work with independent contractors)

• Deduction worksheets

• IRS correspondence (if any)

  
  

Why? If the IRS ever questions a past tax return, you’ll need a copy to back up your numbers. Keep these for at least three years, but seven years is safest.

5. Asset and Investment Records

• Business property deeds or rental agreements

• Equipment purchase records

• Vehicle purchase or lease agreements (if used for business)

• Investment account statements

  
  

Why? These help you track depreciation, claim deductions, and calculate capital gains or losses.

How Long Should You Keep Financial Documents?

The IRS isn’t the type to let things slide quickly.

Here’s how long you should hang onto important financial documents:

📌 Three Years – Basic rule for most tax documents (including returns, W-2s, and 1099s).

📌 Four Years – Payroll records (to cover employment tax audits).

📌 Seven Years – Documents related to deductions for bad debts or losses.

📌 Forever-ish – Business ownership records, major asset purchases, and anything related to long-term investments.

Pro tip: If you’re unsure, keep it longer. The last thing you want is to need a document and realize you shredded it last spring.

How to Keep Your Records Organized (Without Losing Your Mind)

Keeping paperwork organized doesn’t mean hoarding old receipts in a shoebox.

Here’s how to make record-keeping easier:

Go Digital

If you’re still stuffing paper receipts into your glovebox, it’s time to upgrade. Use apps like QuickBooks, Expensify, or Shoeboxed to scan and store receipts electronically.

Use Cloud Storage

Store financial documents in Google Drive, Dropbox, or OneDrive so they’re easily accessible and safe from coffee spills.

Create a Filing System

For physical records, use labeled folders (e.g., "2024 Taxes," "Payroll Records," "Receipts – January 2024"). Sort by year and category to avoid chaos.

Schedule Monthly Check-ins

Don’t wait until tax season—set aside time each month to organize records. Future you will be so grateful.

Final Thoughts: Keep Records, Keep Your Sanity

Staying on top of your financial records isn’t just about keeping the IRS happy—it’s about keeping your business running smoothly. Having well-organized records means less stress, fewer surprises, and more time to focus on growing your business.

We are not CPAs so ask a CPA for anything tax related, but if the thought of bookkeeping makes you want to run for the hills, don’t worry—I can help with the bookkeeping. Call me at 406-404-8955, and let’s make tax season (and every season) a breeze.