The IRS requires documentation that supports everything on your tax return. If you claim income or deductions, you need records that prove those numbers are accurate.

For income, keep bank statements showing deposits, invoices you issued to customers, 1099 forms you received, and sales records. For expenses, you need receipts, canceled checks, credit card statements, and invoices from vendors. The general rule is straightforward. If you claim it, you need to prove it.

Receipts are the foundation of expense documentation. For any deduction over $75, the IRS specifically requires a receipt or similar written record. For smaller amounts, bank and credit card statements can work, but receipts are better because they show what was actually purchased. A credit card statement showing “$47.52 at Office Depot” doesn’t prove you bought office supplies rather than personal items.

For assets like equipment, vehicles, and furniture, keep the original purchase documents showing date, amount, and description of what you bought. These records matter because you’ll depreciate these items over multiple years and need to show the original cost basis. If you sell an asset later, you’ll need that documentation to calculate the gain or loss.

If you have employees, keep payroll records including timesheets, pay stubs, W-4 forms, and records of tax deposits. Employment tax records need to be retained for at least four years after the tax is due or paid.

How long should you keep records? The standard answer is three years from the date you filed the return, which matches the IRS statute of limitations for most audits. But there are exceptions. Keep records for seven years if you claimed a loss from worthless securities or bad debt. Keep asset records until you dispose of the item, plus seven more years. Some documents like business formation papers, prior year tax returns, and contracts should be kept permanently.

Digital records are perfectly acceptable and often better than paper. Scan receipts and store them in organized folders by year and category. Cloud storage provides backup protection that a filing cabinet doesn’t offer. Just make sure you can produce legible copies if asked.

The businesses that struggle at tax time are the ones without organized records. Working with a QuickBooks bookkeeper in Santa Fe throughout the year means your records stay organized as transactions happen rather than reconstructed from memory months later.

Good record-keeping isn’t just about compliance. It’s about knowing your actual numbers so you can make better decisions. Monthly bookkeeping builds the habit of categorizing and documenting everything as it happens, which makes tax time straightforward instead of stressful.