How to Keep Business Records the IRS Expects

Maintain IRS-compliant business records with proper documentation, retention schedules, and organization systems.

1. Document every transaction with source records. Save receipts for all expenses over $75 and bank records for everything else. Credit card statements alone don't satisfy IRS requirements — you need the underlying receipt showing what you bought, when, and for what business purpose. For meals, note who attended and the business discussion on the receipt.
2. Maintain books that reconcile monthly. Your accounting system must match your bank statements every month. Record income when earned, expenses when incurred if you use accrual accounting, or when money moves if you use cash basis. Most small businesses under $27 million revenue can use cash basis.
3. Track business use percentage for mixed-use items. Log actual business miles for vehicles, business percentage for home office space, and business vs personal use for equipment. The IRS wants contemporaneous records — a mileage log created during an audit doesn't count.
4. Store employment records with required retention periods. Keep payroll records for 4 years minimum, including time cards, wage computations, and tax withholdings. Store I-9 forms for 3 years after hire or 1 year after termination, whichever is longer. Maintain workers' compensation and unemployment insurance records per state requirements.
5. Organize records by retention schedule. Keep tax returns and supporting documents for 3 years from filing date, or 6 years if you underreported income by 25% or more. Store asset purchase records until 3 years after you sell or dispose of the asset. Keep corporate formation documents permanently.
6. Maintain backup systems for digital records. Store records in at least two locations — cloud and local, or two cloud services. Digital records must be legible and accessible throughout the retention period. Paper receipts fade, so scan important ones within 30 days.