1. The Three-Year Rule
Keep tax records for at least three years from the filing date or two years from the date the tax was paid, whichever is later. If you claim a loss from worthless securities or bad debt deduction, keep records for seven years. Employment tax records should be retained for four years.
2. Income Documentation
Retain all 1099-NEC, 1099-K, and 1099-MISC forms. Keep invoices, billing statements, and a log of all services performed. For signing agents, maintain confirmation emails, fee schedules, and payment records. Reconcile reported income to your records annually.
3. Expense Receipts
Keep receipts for all deductible business expenses over $75. For expenses under $75, a log entry may suffice if it includes the amount, time, place, and business purpose. Receipts should show the vendor, date, amount, and nature of the expense.
4. Mileage Documentation
Maintain a contemporaneous mileage log showing date, destination, business purpose, and miles driven. The log should be updated at the time of travel. Apps and GPS tracking software can automate this but must capture the business purpose for each trip.
5. Bank Statements
Retain monthly bank and credit card statements. These provide supporting evidence for transactions and can help reconstruct records if receipts are lost. Separate business and personal accounts to simplify recordkeeping and demonstrate business use.
6. Electronic Storage
The IRS accepts electronic records if they are accurate, accessible, and readable. Scan paper receipts and store them in cloud or local backup systems. Organize electronic records by tax year and category for efficient retrieval. Maintain backup copies in case of data loss.