03.07.20178 min read

7 Documents Small Business Owners Should Keep for Tax Records

Keeping up with receipts and other paperwork is often the bane of a business owner’s existence. It’s the worst part of a many people’s day or week, especially at tax time.  

Yes, it stinks, but ensuring these documents, and the handy data they contain for your Schedule C, are properly kept maximizes deductions and protects your business in the case of a possible audit.

In the words of a wise philosopher: “It’s better to have them and not need them than to need them and not have them.”

If you’re just starting your business, or you’re a seasoned small business owner, it’s good to go through the following checklist to make sure you’re protecting yourself and your company.

To help you balance the desire to declutter with the need to preserve your records, I’ve pulled together a list of what you should be keeping and for how long.

1. Bank Statements (keep for three years)

credit cards.jpg

Bank statements prove that your business is, in fact, generating revenue. Generating revenue with the expectation of making a future profit is one of the main factors the IRS considers when deciding if you are operating a real business or if it’s just a hobby.  

Most banks give you access to monthly and yearly bank statements online. Keep the monthly statements handy until you receive your year-end report. Then, securely shred and recycle the monthly statements or delete them from your digital files.

If you’re still receiving paper statements, make sure you get those digitized and stored in the cloud. Or better yet, go ahead and sign up for digital statements.    

2. Payable and Receivable invoices (keep for seven years)

Hold on to invoices that you send for payment or ones that vendors, contractors, and suppliers send to you for goods and services rendered.

Invoices are important because they are the basis for profit and loss statements (P&L). This is one of the main things the IRS pays attention to in the case that you’re audited. Payable invoices serve as expense documentation, and receivable invoices serve as receipts of gross income.

Some examples of invoices small business owners should keep:

  • An invoice from the manufacturer you purchase your T-shirts from
  • Your annual invoice for your email server
  • Your monthly invoice from your packaging provider
  • An invoice you sent to a customer who made an order over the phone instead of through your site

While most invoices will include line items, the IRS says to make sure they include a description making clear the invoice was for a business expense.

3. Home office expenses (keep for three years)

woman on computer.jpg

One of the best things about owning your own business is the option to work from home. If you do work from home and have a designated space you use to work, you can make deductions based on that square footage.

If you’re curious if your home office meets the IRS regular use test, you can check it against their standards here.

The major perk of a home office is the large range of deductions you can claim because of it.

Be sure to hold onto your utility, internet, home insurance, second phone line, and property tax bills. A fraction, or sometimes all, of these bills could also be deducted from the taxes you owe.  

4. Office supply expenses (keep for three years)

In addition to your home office expenses, you can also deduct the supplies you use to furnish your office.

Did you buy a new iMac, printer, and desk to help run your new e-commerce store or photography business? That’s deductible. Just be sure to keep the receipts.  

5. Vehicle and mileage expenses (keep for three years)

Even if you’re conducting most of your business from home, the occasional use of your personal vehicle for business activity can be deducted. This is known as a “mixed-use asset.”  

Whether you’re meeting with a graphic designer at a coffee shop or picking up supplies from your local crafts shop, it’s important to track those trips.

Track your miles traveled using a notebook in your car or download one of the free mileage tracking apps out there.

You should also hold onto bills for routine maintenance such as oil changes, tire rotations, or other major automobile upkeep.

To stay on the more cautious side, always ask for itemized receipts that break down exactly what services and parts were included.  

6. Advertising expenses (keep for three years)

The good thing about marketing and advertising is that they’re deductible expenses.

If you’re paying a monthly fee for CRM and marketing automation, for instance, you can deduct that. If you’re paying someone to manage your Adwords, that’s deductible too. You could also deduct the expense of running your own PPC ads.  

Another convenient thing about digital advertising expenses is that almost all of them give you digital eReceipts. eReceipts are extremely easy to keep track of. Simply create a “Receipt” folder in your email client, and drag and drop them in there as soon as you receive them.

I should note that e-receipts and other digital forms of receipts are always accepted by the IRS. They’ve been accepting them since 1997.  

7. Tax returns (keep for at least seven years)

This might seem like a no-brainer, but tax returns and Quarterly Estimated Tax records, need to be kept forever.

Your accountant will likely want to reference last year’s return for this year’s filing. The IRS could also ask for them if you’re audited.  

Many tax services and software give you the option to download a PDF of your returns so you can store them digitally. As I’ve said above, always take advantage of going digital.

Conclusion

While this list is certainly not exhaustive, it should give you a solid framework for what you should start filing and what you should chuck. If you’re looking for a comprehensive list, you can start at the source itself—with the IRS. Here’s a good document on their website which details recordkeeping for businesses.

I’d also like to note that it never, ever hurts to hire an accountant. Their job is to know the updated tax codes, and they can ensure that your business stays compliant. Yes, TurboTax Business is an awesome tool, but it never hurts to have a professional look at your filing before you submit.   

Please be advised that this article is not intended to serve as legal or professional tax advice.

2017 Strategic Planning Kit - Download Now

Mike Hourigan.png

Mike Hourigan works for Shoeboxed, the leader in paper and digital document organization. Mike connects small business owners with the right technology to help them protect their businesses from audits and lead more productive and organized lives. Since 2007, Shoeboxed has helped more than 1 million business owners go paperless and maximize their deductions.

Created with Sketch.
Infusionsoft cornerstone spinner
close button

Subscribe to our weekly newsletter!

5 Reasons to Subscribe:

1. Weekly tips to dominate sales and marketing

At our core, we're focused on helping you become a sales and marketing machine. We tap into the genius of the best salesfolks and marketers out there to give you daily tips to grow your leads, make more sales, and keep more customers.

2. Expert small business resources that cost you zero dollars

Want to go deep? We have you covered with free guides, webinars, and tools on a range of topics from marketing automation, CRM, and digital marketing to building sales and marketing strategies from the ground up. All for free. All for you.

3. We're focused 100 percent on small business success

We exist for one reason: helping small businesses succeed. We give you the ideas and insights you need to blow the competition out of the water. We serve business owners who are hungry to put in the hard work to grow their business and own the market.

4. We do the work for you

Running a small business is a 110 percent endeavor. You don't have time to surf Internet for the best small business insights and ideas out there. We'll do that for you with the best original content from our team and from industry experts and small business owners.

5. But wait, there's more!

Small business success means more than just sales and marketing, so we also hit on a range of topics to help your small business thrive, including personal and business growth, customer service, and business management.

6. Righteous GIFs

OK, we said five reasons, but we like to overdeliver...and GIFs. We really like GIFs. You're bound to see some righteous ones.

GIF of Ferris Bueler principal's assistant

P.S. We'll never give out your information. We'll only use it to send you awesome content and resources, if you're cool with that.