What Records Does A Small Business Need to Keep?

Keeping tax records and other important business documents isn’t just helpful for filing taxes — it’s also required by the IRS. With piles of receipts and paperwork, it can be tough to figure out what to keep and what you can safely toss. In this guide, we’ll go over what small business records you need to save, how long to keep them, and the easiest ways to store them — so you don’t drown in a sea of papers.

Tax Records & Receipts You Should Keep

The IRS expects small business owners and self-employed individuals to save documents that support income, deductions, or credits on tax returns. These records prove that you earned what you said you did and spent money as claimed.

Make sure to keep the following records:

• Receipts

• Bank and credit card statements

• Bills

• Canceled checks

• Invoices

• Payment records (like PayPal transactions)

• Your bookkeeper or accounting software reports

• Previously filed tax returns

• Forms W-2 and 1099

• Any other documentation that supports income, deductions, or credits

This list isn’t exhaustive — the records you need can depend on your type of business.

You are responsible for proving your business transactions, so the simple advice is: keep everything. Digital storage makes this easier, keeps receipts safe, and ensures you can support every deduction if the IRS comes knocking.

The $75 Rule: Receipts You Could (But Shouldn't) Throw Away

The IRS generally expects proof of expenses — receipts, canceled checks, or bills. We recommend keeping everything, but there are a few exceptions:

• Total cost under $75 (except lodging)

• Transportation expense without a receipt

• Business travel expenses reported through an accountable plan with a per diem

Even with exceptions, expenses under $75 can still be questioned during an audit. If you don’t have a receipt, the IRS will require these details:

• Amount spent

• Date of transaction

• Location

• Purpose of expense

• Names of clients for meals or entertainment

When Is It Legal to Shred Tax Records?

THE THREE-YEAR LIMITATION

Most tax records should be kept for three years after filing the return, or three years after the tax return due date — whichever is later. Even if you file early, it counts from the original due date.

EXAMPLE OF A THREE-YEAR LIMIT

If you filed your 2019 tax return on April 10, 2020, and the deadline was April 15, 2020, you’d need to keep records until April 15, 2023 — three years after the due date.

This is called the period of limitations — the time frame when you can amend a return or the IRS can audit it. Once it ends, you aren’t required to keep the return or supporting documents.

The Three-Year Rule Exceptions

Some situations require keeping records longer:

Bad debts & worthless securities – keep for 7 years if claimed as a deduction.

Unreported income over 25% of gross income – keep for 6 years.

Employee records – retain for 4 years after payroll taxes are due or paid.

No return or fraudulent return – no limit; the IRS can pursue you indefinitely.

Property records – retain for 3 years to calculate depreciation, amortization, depletion, or gains/losses on sales. This includes deeds, titles, and cost basis info.

How to Keep Receipts and Tax Documents

Now that you know what to keep, it’s time to organize and store them efficiently.

Most receipts are already digital, but for paper copies (like shipping receipts), going fully paperless is best.

The IRS accepts digital copies as long as they match the originals. You must be able to print legible copies if requested.

Use cloud services like Dropbox, Google Drive, Evernote, or Sync. If you have a lot of documents, a fast scanner is worth it. Also, keep a backup, such as an encrypted drive or a second cloud account.

Maintaining Records for Non-Tax Reasons

Creditors, lawyers, or insurance companies may also want copies of your records and could require them longer than the IRS does. Before shredding, make sure you won’t need the documents for another purpose. Digital storage allows you to archive without deleting completely.

Conclusion

Keeping up with small business recordkeeping rules can feel overwhelming. While knowing what to save and for how long is important, the simplest rule is to save everything.

When tax season rolls around, you won’t scramble for missing receipts, and you’ll have peace of mind knowing your records are audit-ready.

Visit Today CFO’s blog for more free tips and guidance for small business owners.