Business records: what to keep, how long, and what counts as proof

Ask ten business owners how long to keep records and most will say seven years. It is a sensible habit, but it is not the rule. The IRS’s own answer is that you keep whatever supports an item on a tax return “until the period of limitations for that tax return runs out.”¹ How long that is depends on what happened on the return, and a few kinds of records follow different clocks entirely.

The other half of the question gets less attention and causes more trouble: what a record has to show before it counts. The burden of proving a deduction is on the business, not the IRS,² and the proof that owners most often rely on turns out to be the weakest kind.

How long the IRS can look back

Each period below is the IRS’s own wording, matched to the part of the tax code it comes from.¹³

Federal retention periodsYears after filing

• Records behind an ordinary return3 years
  From the date you filed. A return filed early counts as filed on its due date.
• Payroll tax records4 years
  After the tax was due or was paid, whichever is later.
• Income under-reported by more than 25%6 years
  Applies even when the omission was an honest mistake.
• A bad-debt or worthless-securities loss7 years
  The window for claiming a refund for that loss.
• Equipment, vehicles, and propertyLife of the asset, plus
  Until the period runs out for the year you sell or scrap it.
• No return filed, or a fraudulent oneNo limit
  The clock never starts.

Two of these deserve a closer look, because they are the ones that catch businesses with untidy books.

The six-year rule does not require bad intent. It applies when income left off the return is more than 25% of the gross income that was reported. For a business, the tax code measures gross income as receipts from sales before subtracting the cost of those sales.³ A set of books that missed a few months of deposits from one payment processor can cross that line without anyone meaning to hide anything.

Asset records outlive everything else. What you paid for a truck, when it went into service, and the depreciation taken each year all determine the gain or loss when you finally sell it. The IRS asks you to keep those records “until the period of limitations expires for the year in which you dispose of the property.”⁴ A truck bought in 2020 and sold in 2030 is reported on the 2030 return, filed in 2031. Its purchase paperwork is still needed in 2034.

The payroll clock is set by regulation rather than by the general rule: employment tax records are kept “at least four years after the due date of such tax for the return period to which the records relate, or the date such tax is paid, whichever is the later.”⁵

So where does “seven years” come from?

It is a rule of thumb that happens to cover every case above that does not involve a missing return: longer than the six-year period, as long as the seven-year refund window, and longer than what most states ask. As a blanket policy it is sound. Just know its two gaps. It is not long enough for asset records, and it is not a reason to throw away tax returns themselves; the IRS’s advice there is simply “Keep copies of your filed tax returns.”¹

What a record has to show

The law does not prescribe a filing system. “You can choose any recordkeeping system suited to your business that clearly shows your income and expenses.”⁴ What it does expect is that each expense can be backed by documents that, in the IRS’s words, “identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item purchased or service received.”⁶

That is five things, and no single common document shows all of them. This is where the most widespread assumption in small-business bookkeeping breaks down. A line on a bank or credit card statement shows the payee, the date, and the amount. Publication 583 is blunt about what that is worth:

Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost.⁴

The same goes for a canceled check, which “by itself doesn’t prove a business expense without other evidence to show that it was for a business purpose.”⁷ A statement line reading AMZN Mktp $212.40 could be printer toner or a birthday present. Only the order confirmation says which.

What each record proves

Record	That you paid	What it was	Why it was business
Bank or card statement	Yes	No	No
Canceled check	Yes	No	No
Invoice or bill	No	Yes	Often
Itemized receipt	Yes	Yes	Often
Receipt or invoice, the statement, and a note of the purpose	Yes	Yes	Yes

In practice this means the statement is the index and the receipt or invoice is the evidence. Books built from a bank feed alone are organized, but they are not yet supported.

Travel, vehicles, and gifts: the stricter rules

For three kinds of expense, Congress wrote the proof requirements into the statute itself: travel away from home (including the meals and lodging that go with it), gifts, and what the code calls listed property, which for most small businesses means vehicles. For each, you must be able to show the amount, the time and place, the business purpose, and the business relationship of anyone who benefited.⁸

Three details of these rules are widely misremembered.

The $75 receipt rule is narrower than people think. The regulation requires a receipt or similar document for “any expenditure for lodging while traveling away from home” and for “any other expenditure of $75 or more.”⁹ So lodging always needs a receipt, whatever the amount. And the $75 line belongs only to these categories. It is not a general permission to skip receipts on small purchases, and below $75 you still need the record itself: the amount, date, place, and purpose written down somewhere.

The record has to be made close to the event, but not on the spot. The standard is “at or near the time,” meaning while you still have full knowledge of the details. The regulation gives a concrete safe example: “a log maintained on a weekly basis, which accounts for use during the week, shall be considered a record made at or near the time of such use.”⁹ A log kept by a phone app qualifies. A log reconstructed the following March does not have the same standing.

Estimates do not work here. In most areas a court may allow a reasonable estimate when it is clear that an expense was real but the paperwork is thin. That leniency comes from a 1930 case, Cohan v. Commissioner, and the regulations state plainly that it does not reach these categories: “no deduction or credit shall be allowed a taxpayer on the basis of such approximations or unsupported testimony.”⁹

What a mileage log needs

Using the standard mileage rate does not replace the log. You still have to substantiate “the business mileage” and “the time and business purpose of each use.”⁹ Four things per trip, plus the total miles the vehicle was driven in the year:⁷

Mileage logWeek of March 9

Date	Destination	Business purpose	Miles
Mar 9	Harbor Supply	Pick up materials, Ortiz job	14
Mar 11	412 Alder St	Estimate for new client	22
Mar 12	First Coast Bank	Deposit; meet loan officer	6
Business miles this week			42

Odometer on January 1 and December 31 gives the year’s total miles.

A note on meals. Since 2018 the statutory checklist applies to meals only when they are part of travel. Other business meals are covered by the ordinary rules for business expenses.¹⁰ That changes which rule a meal is judged under, not what a careful record looks like: a receipt alone still says nothing about who was at the table or why, so writing both on it remains the right habit.

Paper or digital

You do not have to keep paper. The IRS has accepted electronic storage of paper records since 1997, on conditions set out in Revenue Procedure 97-22: the system has to index, store, preserve, retrieve, and reproduce the records; the copies must be highly legible; and there has to be a trail from the ledger entry to the document behind it.¹¹ The IRS’s current guidance puts it in one line: “All requirements that apply to hard copy books and records also apply to electronic records.”⁶

Two points here are easy to miss.

• Shredding has a precondition. The revenue procedure allows originals to be destroyed only after the business has tested its storage system and put procedures in place to keep it working.¹¹ For a small business that means, at the least, checking that scans are readable and findable before the paper goes.
• The accounting file is itself a record. In an examination the IRS may ask for a backup copy of the accounting software file, not only printed reports.¹² If you ever cancel a subscription or switch programs, export the ledger and the year-end reports first, and keep them with that year’s return.

Records about people

Once a business has employees, other agencies set their own minimums. These are federal floors, and they run alongside the four-year payroll tax rule above.

Employer recordsFederal minimums

Record	Keep at least
Payroll records Fair Labor Standards Act, 29 CFR 516.5	3 years
Time cards and wage rate tables 29 CFR 516.6	2 years
Form I-9 8 CFR 274a.2	3 years after hire, or 1 year after employment ends, whichever is later
Personnel and hiring records 29 CFR 1602.14	1 year from the record or the action, whichever is later
Benefit plan filings and their support 29 U.S.C. 1027	6 years after filing

Because the payroll tax rule is the longest of the common ones, keeping everything about payroll for four years after the last return of the year is filed covers the first three rows.

Your state may want longer

State periods are set separately and are often longer than the federal three years. A few examples, each from the agency itself:

• California. The Franchise Tax Board’s period is “usually 4 years from the due date of the return, or the date the return is filed.” Sales and use tax records must be “preserved for a period of not less than four years,” and the Employment Development Department asks employers to “keep payroll records for at least four years.”¹⁶
• Texas. Sales tax records, “at least four years.”¹⁷
• Washington. Five years.¹⁷
• Ohio and Arizona. Four years for sales tax and transaction privilege tax records.¹⁷

If you file in more than one state, the longest period you are subject to is the one that matters.

A routine that satisfies all of it

None of this needs special software. It needs the same few steps done every month, so that proof is gathered while it is easy to find.

1. Download every statement as a PDF each month. Bank, credit card, loan, payment processor, payroll. Do not count on being able to fetch them online years from now.
2. Attach the receipt or invoice to the transaction, either in the accounting software or in a folder for that month. A phone photo taken the same day is fine.
3. Write the purpose on travel, meal, and gift receipts when you get them: who, and why. Ten seconds then saves an unanswerable question later.
4. Log vehicle use weekly, or let an app do it, and record the odometer on January 1 and December 31.
5. Keep an asset file apart from the yearly folders. Purchase documents, loan papers, and the depreciation schedule from each return, kept until the asset is gone and the years after it have run.
6. Close each year with a packet: the return as filed, the year-end financial statements, an export of the ledger, payroll reports, and the 1099s and W-9s behind them.
7. Each January, release one year. If your policy is seven years, January 2027 is when the support for a return filed in 2019 can go. Returns, the asset file, and anything a lender or insurer has asked you to keep stay put; the IRS itself warns that “your insurance company or creditors may require you to keep them longer than the IRS does.”¹

The last step matters more than it looks. A retention policy that is never applied is just a growing pile, and a pile is hard to search when someone finally asks for one document from it.

Sources

1. Internal Revenue Service, How long should I keep records? Page last reviewed June 30, 2026.
2. Internal Revenue Service, Burden of proof. Page last reviewed October 1, 2026. See also Internal Revenue Code section 7491.
3. Internal Revenue Code section 6501 (limitations on assessment; the 25% rule and the definition of gross income for a business are in subsection (e)(1)) and section 6511 (refund claims). Legal Information Institute, Cornell Law School.
4. Internal Revenue Service, Publication 583, Starting a Business and Keeping Records. Revised December 2024.
5. Treasury regulations, 26 CFR 31.6001-1, paragraph (e)(2). Electronic Code of Federal Regulations.
6. Internal Revenue Service, What kind of records should I keep. Page last reviewed August 3, 2026.
7. Internal Revenue Service, Publication 463, Travel, Gift, and Car Expenses. 2025 edition. The elements of a car expense record are in Table 5-1.
8. Internal Revenue Code section 274(d); listed property is defined in section 280F(d)(4).
9. Treasury regulations, 26 CFR 1.274-5 (the $75 and lodging rule is paragraph (c)(2)(iii); mileage is paragraph (j)(2)) and 26 CFR 1.274-5T (the Cohan rule is paragraph (a); weekly logs and computer logs are paragraph (c)(2)(ii)).
10. Treasury Decision 9925, final regulations on meal and entertainment expenses, 85 Fed. Reg. 64035, October 9, 2020. The preamble explains what remains under section 274(d).
11. Internal Revenue Service, Revenue Procedure 97-22, in Internal Revenue Bulletin 1997-13, March 31, 1997. Still cited in Publication 583.
12. Internal Revenue Service, Use of electronic accounting software records: frequently asked questions and answers. Page last reviewed July 3, 2026.
13. Department of Labor regulations, 29 CFR part 516, sections 516.5 and 516.6.
14. Department of Homeland Security regulations, 8 CFR 274a.2, paragraph (b)(2)(i)(A).
15. Equal Employment Opportunity Commission regulations, 29 CFR 1602.14; Employee Retirement Income Security Act, 29 U.S.C. 1027.
16. California Franchise Tax Board, Keeping your tax records, updated September 24, 2025; California Department of Tax and Fee Administration, Regulation 1698; Employment Development Department, California Employer’s Guide (DE 44), 2026.
17. Texas Comptroller, Sales tax frequently asked questions: keeping records; Washington RCW 82.32.070; Ohio Administrative Code 5703-9-02; Arizona Department of Revenue, Business record keeping.