Why careful recordkeeping still matters

Even though the Tax Cuts and Jobs Act suspended many miscellaneous itemized deductions subject to the 2% of AGI floor for tax years 2018 through 2025, recordkeeping remains important. If you’re self-employed, run a rental business, or otherwise incur business-related expenses, those costs are still deductible on business schedules (for example, Schedule C, E or F). Some taxpayers also qualify for narrow exceptions to the suspension at the federal level, and many states permit deductions that the federal code does not. Good records protect you in an audit, help you plan, and make it easier to prepare both federal and state returns (IRS: Miscellaneous Deductions, https://www.irs.gov/credits-deductions/individuals/miscellaneous-deductions).

In my work with clients over the past 15 years, the taxpayers who win audits or maximize legitimate deductions are rarely those who scramble for receipts in April. They keep ongoing, categorized records and reconcile totals monthly.

Who needs to keep which records

  • Self-employed individuals and independent contractors: Every expense tied to your trade or business should be documented and recorded for Schedule C (or the appropriate business form). See IRS Publication 535 for business expense rules (https://www.irs.gov/publications/p535).
  • Rental-property owners and investors: Keep receipts, leases, and statements supporting deductions reported on Schedule E. Publication 527 covers rental income and expenses.
  • Employees: For most employees, unreimbursed employee expenses and many other miscellaneous itemized deductions are suspended at the federal level through 2025. That said, keep employer reimbursements and any employer-paid expense records; some states still allow employee deductions.
  • Taxpayers claiming home office deductions: Only available for self-employed taxpayers and some gig workers; document square footage, exclusive use, and expense allocation (IRS Publication 587: Home Office Deduction, https://www.irs.gov/publications/p587). For more detail see FinHelp’s guides on home office deductions: Home Office Deduction and Documenting Home Office Expenses Under Current Rules.

What documents to keep (a practical checklist)

Keep documentation that establishes: what the expense was, when it occurred, how much it cost, and why it was incurred for business or deductible purpose. Typical items include:

  • Original receipts and invoices (or high-quality scans/photos).
  • Bank and credit-card statements that corroborate amounts.
  • Cancelled checks or electronic payment confirmations.
  • Mileage logs with date, business purpose, start/end location, and miles driven (or use reliable mileage apps that export reports).
  • Daily diary, calendar entries, or contemporaneous notes linking expenses to business activity.
  • Contracts, agreements, and correspondence related to the expense (emails, proposal documents).
  • Form 1099s, broker statements (Form 1099-B), and year-end investment performance summaries.
  • For home office: floor-plan, square footage calculation, and a running list of shared vs. exclusive expenses.

Tip: Store a short summary spreadsheet each year that lists each deduction category, total amount, and where the receipts are filed. That one-sheet summary saves hours during review or audit.

How long to keep records

Follow the IRS baseline: keep most tax records at least three years from the date you file (or two years from the date you paid tax), because that’s generally the window for the IRS to assess additional tax (IRS: Recordkeeping, https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping). However, specific situations require longer retention:

  • Keep records for 7 years if you file a claim for a loss from worthless securities or a bad debt deduction.
  • Keep records for 6 years if you underreport income by more than 25%.
  • Keep records indefinitely if you do not file a return or if you file a fraudulent return.
  • Keep records related to property (cost basis, depreciation) for as long as you own the property plus the period after you sell it (to prove basis and any depreciation claimed).

When in doubt, retain detailed records for at least seven years for items tied to basis or significant transactions.

How to organize records (system recommendations)

  1. Separate business and personal accounts. Use dedicated business bank and credit card accounts to avoid commingling—this reduces documentation time and audit risk.
  2. Use consistent categories. Create month-by-month folders (digital or physical) and subfolders for categories such as Travel, Meals & Entertainment, Supplies, Professional Fees, and Home Office.
  3. Save digital copies. Scan receipts immediately with a phone app (Adobe Scan, Expensify, QuickBooks GoPayment); OCR searchability saves time. Keep originals when required, but digital copies are generally acceptable if legible.
  4. Back up offsite. Use at least two backups (cloud + local). Ensure passwords and two-factor authentication protect sensitive files.
  5. Reconcile monthly. Match bank/credit card statements to your expense tracking software to catch missing items early.

Mileage and travel: what to capture

Mileage is a common source of audit questions. Document:

  • Date
  • Business purpose
  • Starting point and destination
  • Odometer readings or miles driven
  • Business miles vs. personal miles
    Keep receipts for tolls and parking. If you use the standard mileage rate, keep a contemporaneous log; if you use actual vehicle expenses, keep receipts for gas, repairs, insurance, and depreciation calculations (IRS Publication 463, https://www.irs.gov/publications/p463).

Home office and shared expenses

For a home office deduction, be ready to show:

  • A floor plan and the square footage for the office area and the whole home.
  • Evidence that the space is used regularly and exclusively for business (photos, dated notes, client calendars).
  • Utility bills, mortgage interest, rent, insurance, repairs, and other expenses that support the prorated deduction.
    Self-employed taxpayers must choose either the simplified or regular method and keep records that support whichever method they claim (IRS Publication 587).

Audit preparation: assemble a clean packet

If the IRS requests substantiation, deliver a clear, concise packet.

  • Start with a one-page summary: tax year, total claimed miscellaneous deductions, categories and totals, and source documents page numbers.
  • Provide receipts grouped by category with cross-references to bank statements or 1099s.
  • Include a reconciliation (e.g., accounting ledger -> receipts -> bank statement).
  • Attach a short narrative explaining unclear items (e.g., why a travel expense was business-related).

State rules and exceptions

Some states continue to allow miscellaneous deductions that are suspended federally. Also, narrow federal exceptions exist for certain groups (for example, qualified performing artists or specific members of the armed forces). Always check your state tax guides and consult a tax pro for exceptions that might apply (IRS: Miscellaneous Deductions page).

Real-world examples (short)

  • A freelance designer I advise saves invoices and tracked time in accounting software; at year-end the software produces expense reports and invoice-backed totals that make Schedule C preparation straightforward.
  • A rental owner kept a maintenance log with photos and receipts; when an insurance settlement and tax deduction overlapped, the organized records avoided double-counting and satisfied the IRS reviewer.

Tools and templates to consider

  • Accounting software: QuickBooks Self-Employed, Wave, or FreshBooks for separating business transactions.
  • Receipt-scanning apps: Expensify, Neat, or even the mobile banking app that saves receipts.
  • Mileage trackers: MileIQ, Everlance, or Stride.
  • Simple spreadsheet template: columns for date, vendor, category, amount, payment method, and attached file name.

Final checklist before filing

  • Confirm which deductions are allowed at the federal level (2018–2025 suspensions) vs. state level.
  • Ensure receipts and statements support every figure claimed.
  • Keep a one-page summary of totals and where documents are stored.
  • Maintain digital backups and an audit packet folder for at least three to six years.

Professional disclaimer: This article is educational and not individualized tax advice. Rules change and exceptions apply. Consult a qualified tax professional for guidance on your specific situation.

Authoritative sources: IRS — Miscellaneous Deductions (https://www.irs.gov/credits-deductions/individuals/miscellaneous-deductions); IRS — Recordkeeping (https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping); IRS Publication 587 — Home Office Deduction (https://www.irs.gov/publications/p587); IRS Publication 535 — Business Expenses (https://www.irs.gov/publications/p535);

Related FinHelp guides: Home Office Deduction (https://finhelp.io/glossary/home-office-deduction/) and Documenting Home Office Expenses Under Current Rules (https://finhelp.io/glossary/documenting-home-office-expenses-under-current-rules/).