Recordkeeping Requirements: What the IRS Expects and How Long to Keep Records

Quick answer

The IRS expects taxpayers to keep records that support items on a tax return — income, deductions, credits, and the basis of property. How long you keep them depends on the transaction: most returns require three years of records, but some situations need four, six, seven, or indefinite retention. The IRS accepts digital copies when they’re accurate and accessible. (See IRS recordkeeping guidance: https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping and Publication 583: https://www.irs.gov/forms-pubs/about-publication-583.)

Why recordkeeping matters

Accurate records let you:

• Prove income and deductions during an IRS correspondence or field audit.
• Establish the cost basis of assets when you sell property — which affects capital gains tax.
• Claim credits and refunds without delay.
• Reconstruct transactions if a bank or vendor no longer has older statements.

In my practice advising small business owners and freelancers, the cases that cause the most trouble are not intentional fraud but missing documentation for ordinary deductions. Yearly bookkeeping plus retained receipts prevents preventable tax bills and audit headaches.

What documents should you keep?

Keep any documents that substantiate figures on your tax returns. Common items include:

• Tax returns and supporting schedules for each year.
• W-2s, 1099s, K-1s and other income statements.
• Bank and brokerage statements showing deposits, withdrawals, and dividends.
• Receipts and invoices for deductible expenses (business, medical, charitable, education).
• Canceled checks or records of electronic payments you rely on for support.
• Contracts, closing statements, and improvement records for real property (to establish basis).
• Records of business assets: purchase price, date placed in service, depreciation schedules.
• Employment tax records (payroll registers, Forms 941/940 and W-2 copies).
• Records of casualty losses, casualty insurance, and disaster-related claims.

Note: Keep records that support the amount, date, and business purpose of each item. If an expense is deductible only as a business cost, document the business reason and the parties involved.

How long should you keep tax records? (Practical rules)

The IRS does not specify a single, universal retention period — it ties retention to the statute of limitations on assessment or claims. Use these practical rules (sources: IRS Recordkeeping page and Publication 583):

• Keep most records for 3 years. The IRS generally has three years from your file date to audit a return and assess additional tax. (IRS: Recordkeeping)

• Keep records for 4 years if you file a claim for credit or refund after the return was filed or if you underreported your income and the period for claiming a loss is linked to taxes paid.

• Keep records for 6 years if you omit more than 25% of your gross income on a return. This extends the IRS’s assessment window to six years.

• Keep records indefinitely if you file a fraudulent return or do not file a return at all; the IRS can assess tax at any time in those cases.

• Keep employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. This includes payroll registers and Forms 941/940.

• Keep property records for as long as they are needed to determine basis and reported gain or loss when you sell. Many taxpayers keep property records for at least 7 years after a sale to cover situations with improvements, depreciation, and other basis adjustments.

• Keep records relating to worthless securities or bad debt deductions for 7 years.

These are general rules; the exact retention period may change with the facts of your situation. For full IRS guidance, see: https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping and Publication 583: https://www.irs.gov/forms-pubs/about-publication-583.

Digital records: are scanned copies acceptable?

Yes. The IRS accepts electronic records that are accurate, readable, and retrievable for tax compliance and audits. Do the following when you digitize:

• Use a consistent naming scheme and folder structure.
• Store original metadata (date, source) or add it manually if missing.
• Maintain backup copies in a separate physical or cloud location.
• Ensure files are accessible and can be produced in a legible format on request.

In practice, scanned receipts and PDFs reduce clutter and make searches faster. But don’t rely on a single copy — keep redundant backups and an exportable index or spreadsheet that lists key documents and dates.

Organization and retention strategies (actionable)

Adopt a simple system you will actually use. Recommended workflow:

1. Create a yearly folder for tax returns and subfolders for “Income,” “Expenses,” “Assets,” and “Payroll.” Use the format YYYYTaxReturn (e.g., 2024TaxReturn).
2. At month-end, reconcile bank and credit-card statements against bookkeeping categories.
3. Scan receipts and attach them to expense entries in your accounting software or store them in dated subfolders.
4. Keep a single spreadsheet or accounting software report with totals and references to supporting documents.
5. Annually purge only documents beyond the legal retention period — but run a quick check first for any property or long-term items that still need files.

If you use a tax or bookkeeping professional, provide a clear index and copies of the key supporting documents rather than overwhelming them with unsorted piles.

Preparing for an audit or information request

When the IRS requests records, respond quickly and fully. Steps I recommend:

• Review the notice and identify the exact years and items requested.
• Produce the requested documents in the order asked; include a short cover letter summarizing what you are providing.
• If you cannot find a document, request duplicates from the bank, vendor, or employer; many institutions will provide older statements for a fee.
• Consider professional help if the matter is complex—see our guide on how to gather records for an IRS audit: How to Gather Records for an IRS Audit: A Step-by-Step Guide (https://finhelp.io/glossary/how-to-gather-records-for-an-irs-audit-a-step-by-step-guide/).

If the audit involves a field visit, review documentation best practices in How to Prepare for an IRS Field Audit: Documentation and Best Practices (https://finhelp.io/glossary/how-to-prepare-for-an-irs-field-audit-documentation-and-best-practices/). For remote (correspondence) requests, see Preparing for a Correspondence Audit: Remote Documentation Tactics (https://finhelp.io/glossary/preparing-for-a-correspondence-audit-remote-documentation-tactics/).

Common mistakes that increase risk

• Throwing out records after three years without checking for special circumstances (e.g., unreported income, property sales).
• Failing to document the business purpose for mixed or travel expenses.
• Keeping only credit-card summaries without matching receipts when receipts are required for substantiation.
• Relying on informal notes without corroborating documents.

Avoid these by implementing the organization steps above and keeping documentation that links the amount, date, and business reason.

What to do if you lost records

• Request duplicates from banks, payment processors, employers, or vendors.
• Use available electronic trails: credit-card records, bank statements, and merchant invoices.
• Recreate missing records with a contemporaneous affidavit explaining why originals are missing and how figures were reconstructed. While a reconstruction can help, the IRS prefers original documentation.

Practical checklist (one-page)

• Keep tax returns and copies for at least 3 years.
• Keep payroll and employment tax records for 4 years.
• Keep records related to underreported income for 6 years.
• Keep property and basis records until at least 3 years after the sale — often 7 years to be safe.
• Digitize and back up to at least two secure locations.
• Reconcile statements monthly and retain supporting receipts.

Final tips and professional perspective

Recordkeeping is preventive tax hygiene. In my experience, clients who spend 2–4 hours per month on organizing documents avoid most disputes and reduce their professional fees during audits. For small business owners, pairing cloud accounting software with a simple folder structure and an annual review is the fastest route to compliance.

This article summarizes general IRS rules and common best practices. It is educational and not personalized tax advice. For specific retention questions tied to complex transactions (like international reporting, large asset dispositions, or suspected fraud), consult a tax advisor or attorney.

Sources

• IRS — Recordkeeping: https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping
• IRS Publication 583, Starting a Business and Keeping Records: https://www.irs.gov/forms-pubs/about-publication-583
• IRS Tax Topic 304 (Records): https://www.irs.gov/taxtopics/tc304

Disclaimer: This content is for general informational purposes only and does not replace personalized tax or legal advice.