Books of account and records your business must keep
The law asks one thing: your records must clearly show your income, deductions and credits, and you must be able to back them up. Here is what that means in practice, and how long to keep each record.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on October 21, 2026.
The rule
Except in a few cases, the law does not require a specific kind of record. You can use any recordkeeping system suited to your business that clearly shows your income and expenses, set up on the accounting method you use for tax. Your books must show your gross income, deductions and credits, and you must keep the supporting documents. Keep the records available for inspection by the IRS. If your books cannot be relied on, the IRS can refigure your income under a method it believes does clearly reflect income.
The books of account
- A journal or register of daily transactions: sales, receipts and payments. For most small businesses the business checkbook, or accounting software tied to the bank account, is the main source.
- A ledger or chart of accounts that summarizes income, expenses, assets, liabilities and equity. A double-entry system is self-balancing and more reliable. A single-entry system can work for a very small business.
- Monthly bank and credit card reconciliations, so the books match the statements.
- Separate books for each separate business you operate. No business is "separate and distinct" for accounting method purposes unless it has its own complete set of books.
- Minutes of board meetings for a corporation, including an S corporation.
Supporting documents
Your books are supported by sales slips, invoices, receipts, bank deposit slips, paid bills and canceled checks, and by Forms 1099 you receive. Keep them in order, by year and by type of income or expense. Travel, vehicle and gift expenses have their own record rules: see our business vehicle guide.
Records by type
| Kind of record | What to keep |
|---|---|
| Income | Invoices, bank deposit slips, cash register tapes, receipt books, credit card slips and Forms 1099 you received. |
| Inventory | Purchase invoices, counts at year-end and the method you use to value inventory. |
| Expenses | Paid bills, receipts, account statements and petty cash slips. |
| Business assets | When and how you got each asset, the price, improvements, Section 179 and depreciation taken, how it was used, and when and how you sold it, with the selling price and costs. |
| Payroll | Your EIN, the amounts and dates of wages, each employee's name, address, SSN and occupation, dates of employment, Forms W-4, tax deposit dates, copies of returns filed, and fringe benefits and reimbursements with their substantiation. |
| Workers paid as contractors | A Form W-9 for each one, invoices and your Forms 1099-NEC. |
| S corporation owners | Stock and debt basis records (Form 7203), shareholder loans, distributions, officer pay documentation and health insurance premium records. |
How long to keep them
| Situation | Keep the records for |
|---|---|
| The usual case | 3 years from the date you filed the return (a return filed early counts as filed on the due date) |
| You file a claim for credit or refund after filing | 3 years from filing or 2 years from paying the tax, whichever is later |
| You left out income of more than 25% of the gross income on the return | 6 years |
| A bad debt or worthless securities deduction | 7 years |
| You did not file a return, or the return was fraudulent | Indefinitely |
| Employment tax records | At least 4 years after the tax is due or paid, whichever is later |
| Records about property | Until the limitation period ends for the year you dispose of the property |
Also keep copies of your filed returns. Do not throw records away until you check whether insurers, lenders or other agencies need them longer than the IRS does.
Electronic records
All the rules for paper books and records also apply to electronic storage. The system must index, store, preserve, retrieve and reproduce the records in legible form, and it must give the IRS access. You may destroy the paper originals only if the system has been tested and meets IRS requirements (Rev. Proc. 97-22). The IRS may test your system.
Related IRS compliance
- Use your accounting method the same way every year. See accounting methods.
- Payroll returns and deposits for employees: Form 941 each quarter (due April 30, July 31, October 31 and January 31), Form 940 and Forms W-2 and W-3. See employees vs contractors.
- Information returns for contractors: collect a Form W-9, and file Form 1099-NEC for payments of $2,000 or more made in 2026 (it was $600 before 2026).
- S corporations file Form 1120-S with Schedules K-1. Form 1125-E (officer compensation) is required when total receipts are $500,000 or more. Shareholders file Form 7203 when they claim a loss, receive a distribution, sell stock or are repaid a loan.
- More on what the IRS and the state can do if records are missing: business records guide.
Common questions
Do I need double-entry bookkeeping?
The law does not require a specific kind of record. You may use any system suited to your business that clearly shows your income and expenses. Double-entry bookkeeping has built-in checks, and most accounting software uses it.
Can I just keep my bank statements?
Bank statements help, but they usually are not enough alone. You also need the documents that show what each payment was for, such as invoices and receipts. A canceled check by itself does not prove a business purpose.
Can I scan my receipts and shred the paper?
Only if your electronic storage system meets IRS requirements: it must index, store, preserve, retrieve and reproduce the records in legible form, and it must have been tested. Ask us before you shred.
How long should I keep my tax records?
Generally 3 years from filing, longer in some cases (6 years if you left out more than 25% of your income, 7 years for bad debt and worthless securities, indefinitely if you did not file or filed a fraudulent return). Keep employment tax records at least 4 years. See the table below.
What if I lost my records?
If records were lost for reasons beyond your control, such as a fire or flood, you can reconstruct them. Otherwise missing records can mean denied deductions, more tax, penalties and interest. Start good habits now and talk to us about earlier years.
Official sources
- IRS Publication 583: Starting a business and keeping records
- IRS: How long should I keep records?
- IRS Publication 15 (2026): Employer's tax guide
- IRS: Instructions for Form 7203 (S corporation shareholder stock and debt basis)
- IRS: Instructions for Form 1120-S
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