Why this matters
During an IRS audit the examiner’s goal is to verify amounts and business purpose for deductions on your return. The IRS expects contemporaneous, reliable records that connect each expense to an ordinary and necessary business activity (see IRS Publication 535 and the IRS recordkeeping guidance).https://www.irs.gov/publications/p535 https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping
How to prepare — step-by-step
- Create an audit binder or digital folder
- Make a clear table of contents and label sections to match return line items (e.g., Travel, Meals, Rent, Vehicle). Use this companion checklist: Preparing an Audit Binder: Documents to Organize Before an IRS Audit for a ready template.https://finhelp.io/glossary/preparing-an-audit-binder-documents-to-organize-before-an-irs-audit/
- Collect primary documents
- Receipts and invoices showing vendor, date, amount, and description of goods/services. Originals are ideal but scanned copies are acceptable if legible.
- Bank and credit-card statements that show payment.
- Canceled checks or electronic payment confirmations.
- Contracts, engagement letters, and signed agreements for services.
- Payroll records and Forms W-2/1099.
- For assets: purchase invoices, depreciation schedules, and proof of business use.
- Add contemporaneous written substantiation
- For travel: itineraries, hotel folios, agendas, and a short explanation of the business purpose.
- For business meals: receipts plus who attended and the business purpose.
- For vehicle expenses: mileage logs showing date, business miles, starting/ending locations, and purpose; correlate to fuel/maintenance receipts. See Documenting Business Use of Vehicles for Audit Defense for examples and templates.https://finhelp.io/glossary/documenting-business-use-of-vehicles-for-audit-defense/
- Reconcile and summarize
- Create a one-page summary for each expense category showing totals reported on the tax return and links to supporting pages in the binder. Auditors appreciate a reconciliation that lets them verify numbers quickly.
- Protect privacy and prepare copies
- Bring organized copies; offer copies to the auditor. Keep originals safe but be ready to produce them if requested. Redact unrelated personal account numbers where appropriate.
What to include with each item
- Date of expense
- Amount paid and payment method
- Vendor name and business description
- Business purpose and relation to your trade or profession
- Evidence of payment (statement, canceled check, card record)
If records are missing
- Recreate missing receipts from bank/credit statements, merchant records, calendars, emailed confirmations, or third-party invoices. Document the reconstruction method and be transparent with the examiner. In some cases, the IRS accepts reconstructed records if they are credible and consistent (see IRS recordkeeping guidance).
How to present during audit interviews or meetings
- Lead with a short cover letter summarizing the categories and dollar totals.
- Use tabs and numbered references so the auditor can find the original support you reference.
- Answer questions directly; do not volunteer unrelated information.
- If you prefer representation, file Form 2848 (Power of Attorney) and have your tax pro handle communications.https://finhelp.io/glossary/using-a-power-of-attorney-form-2848-during-an-audit-or-appeal/
Professional tips from practice
- Keep records contemporaneously. In my practice, audits resolve faster when clients document the business purpose the day of an expense rather than trying to recreate it years later.
- Use accounting software and cloud backups to link receipts to transactions and preserve an audit trail.https://finhelp.io/glossary/best-practices-for-keeping-tax-records-digitally-and-legally-admissible/
- Keep at least three years of records as the IRS generally recommends, and up to six or seven years for issues involving substantial omission of income; consult the IRS recordkeeping page for specifics.https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping
Common mistakes to avoid
- Mixing personal and business receipts without clear allocation.
- Providing unorganized stacks of paper with no index.
- Relying only on handwritten notes without supporting third-party documentation.
After the audit
- Keep copies of everything you gave the auditor and note the date the audit closed.
- If adjustments are proposed, ask for the examiner’s explanation in writing and consider professional review if you disagree (appeals options exist).https://finhelp.io/glossary/audit-defense-options-when-to-settle-appeal-or-litigate/
Quick checklist (printable)
- Organized binder or digital folder
- Table of contents and one-page summaries per category
- Receipts/invoices and payment evidence
- Mileage logs and travel itineraries
- Contracts, payroll, and depreciation schedules
- Copies for the auditor and originals available
Authority and additional reading
- IRS Publication 535, Business Expenses. https://www.irs.gov/publications/p535
- IRS Recordkeeping for Small Businesses. https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping
Disclaimer
This article is educational and does not replace personalized tax advice. For specific questions about an audit or complex issues, consult a CPA, EA, or tax attorney familiar with IRS procedures.
