What Records Does A Small Business Need to Keep?
Guide to Record Keeping for Small Business Owners
Summary
Maintaining accurate business records is not only a legal requirement—it can also save you money if your small business is audited or sued. Good record-keeping practices help track income, expenses, deductions, and credits while giving you peace of mind.
Why Record Keeping Matters
The IRS requires all taxpayers to retain documents that support income, deductions, and credits. If your business is audited, the burden of proof is on you. Missing or incomplete records could result in fines, penalties, or additional taxes.
By keeping thorough records, you ensure your financial transactions are verifiable, and you can quickly respond to any inquiries from the IRS or other authorities.
Essential Records to Keep
Every small business should maintain accurate records of:
Receipts
Bank and credit card statements
Bills and invoices
Canceled checks
Proof of payments (e.g., PayPal transactions)
Financial statements from your bookkeeper
Previously filed tax returns
W-2 and 1099 forms
Any other documentation supporting income, deductions, or credits
Tip: Keep everything digitally when possible—it makes retrieval easier and reduces the risk of lost documents.
The $75 Rule: Exceptions to Keeping Receipts
While it’s recommended to keep all receipts, some expenses may not require a physical record:
Costs under $75 (except lodging)
Transportation charges without a receipt
Expenses reported to an employer via a per diem
Even small expenses may be questioned in an IRS audit. If receipts are missing, document:
Amount spent
Date of transaction
Location of transaction
Purpose of expense
Names of involved parties (for meals and entertainment)
Apps like Expensify can simplify digital tracking.
How Long Should Records Be Kept?
General rule: Keep tax records for three years from the filing date or the due date of the return, whichever is later.
Exceptions:
Bad debts or worthless securities: 7 years
Unreported income exceeding 25% of gross income: 6 years
Employee records: 4 years
Fraudulent returns or no return filed: Indefinite
Property records: At least 3 years (for depreciation, amortization, or capital gains)
Storing Receipts and Tax Documents
Digital copies are acceptable to the IRS if they are accurate and legible. Use cloud storage services like:
Dropbox
Google Drive
Sync
Evernote
For high volumes, consider a high-speed scanner and maintain a backup on an encrypted drive or secondary cloud storage.
Record Keeping Beyond Taxes
Business records may also be needed by:
Creditors
Lawyers
Insurance providers
Even after the IRS statute of limitations expires, consider keeping documents for other business purposes. Digital archiving makes this easy.
Conclusion
Effective record keeping simplifies tax filing, supports business decisions, and protects you in audits. The best strategy? Keep everything. You’ll save time, reduce stress, and have confidence that your records are complete and organized.
For more small business tips and advice, visit Today CFO’s blog.
