Shoeboxes of receipts, a phone full of photos, a filing cabinet nobody has opened since 2019. Most business owners know they should keep records. Fewer know which ones matter or when they can finally shred them. Here's a simple guide.

Why it matters more than you'd think

If the IRS has questions about your return, you'll usually answer them with paperwork, not in person. In its 2025 fiscal year, the IRS closed 497,621 audits, and 81.0% of them were done by mail (IRS Data Book, 2025). A mail audit, called a correspondence audit, comes down to whether you can send copies that back up what you claimed.

What to keep

The IRS groups business records into a few buckets (IRS Publication 583, 2024):

  • Gross receipts, meaning all the money coming in: invoices, deposit slips, receipt books, credit card slips, and Forms 1099-NEC and 1099-MISC.
  • Inventory, if you resell goods or parts, and expenses: invoices, canceled checks, account statements, credit card slips and petty cash slips.
  • Travel, vehicle, and gift records: mileage logs and the business reason for each trip.
  • Employment tax records, if you have employees: payroll and filings.
  • Asset records for anything you buy to use for years, like trucks, tools and equipment: how and when you got it, what you paid, improvements, depreciation taken, and what you got when you sold it.

Keep copies of your filed tax returns too (IRS, 2026). They help when you prepare future returns or need to amend one.

How long to keep them

The clock is tied to the period of limitations, the window of time in which you can amend a return or the IRS can assess more tax. Here's how the IRS lays it out (IRS, 2026):

  • 3 years for most records, counted from when you filed. A return filed early counts as filed on the due date.
  • 3 years from filing or 2 years from paying the tax, whichever is later, if you file a claim for a refund or credit.
  • 6 years if you leave out income that's more than 25% of the gross income on your return.
  • 7 years if you claim a loss from worthless securities or a bad debt.
  • At least 4 years for employment tax records, after the tax is due or paid, whichever is later.
  • Indefinitely if you never filed a return, or if a return was fraudulent.

Records for things you own

Asset records follow their own clock. Keep them until the limitations period ends for the year you sell or dispose of the property. That's because you need them to figure depreciation and any gain or loss (IRS, 2026).

Say a landscaper buys a skid steer in 2026, keeps it eight years, and sells it in 2034. The purchase paperwork should stick around until at least three years after the 2034 return is filed. And if you trade one piece of property for another in a nontaxable exchange, keep the records for the old property too.

The man who kept no receipts

The best-known recordkeeping case is nearly a century old. In Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930), the taxpayer was a theatrical producer who spent freely entertaining actors, employees and drama critics, and who traveled often. He kept no accounts and estimated his expenses at $55,000 across the years in question. The Board of Tax Appeals, which handled tax disputes then, allowed nothing.

The appeals court, in an opinion by Judge Learned Hand, sent the case back. It said that "absolute certainty in such matters is usually impossible and is not necessary," and that a reasonable estimate should be made, "bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making" (Justia, 1930).

That's where the Cohan rule comes from: when records are missing, a court may allow a rough estimate. Don't count on it, though. Congress later made the rules stricter for travel, gifts and vehicles, and the Cohan rule doesn't apply to those expenses (Cornell Law School Wex, 2026). For those, you need the amount, the date and place, and the business purpose written down (26 U.S.C. §274(d)).

Digital is fine

You don't need paper. The IRS accepts electronic records, including scanned receipts, as long as your system can reproduce them in legible form and give the IRS a complete, accurate record (IRS Publication 583, 2024). A scanning app and a backed-up cloud folder by year works well. Name files so you can find them later, like "2026-03 fuel receipts."

Before you shred

The IRS timeline isn't the only one that counts. Your insurance company or lenders may want records longer, so check with them before you throw anything out (IRS, 2026). A simple habit helps. Once a year, after you file, pull out the oldest year that's past its window, double-check it holds no asset or employment records, then shred it.

If you'd like help setting up a recordkeeping system that fits your business, reach out to Reflexivity. We're glad to help.

General information, not tax advice.