An IRS audit can feel stressful, especially when you are unsure which paperwork you need to support your tax return. While figuring out which right documents depend on your tax situation, having them organized can make it easier to explain how you reported your income and expenses.
Here are the key records worth having on hand.
Tax returns and IRS correspondence
Start with copies of your federal tax returns, related schedules, amended returns, and IRS notices. Having the complete return alongside correspondence can help you connect an IRS question to the information you originally reported. The IRS also recommends keeping copies of filed returns for future reference.
Income records
Your income records should show where the money reported on your return came from, including:
- W-2s, 1099s and K-1s
- Invoices, sales records, and payment information for self-employment income
- Bank statements and other records showing payments you received
These records can help you reconcile the income reported on your return with the transactions behind it.
Receipts and expense records
Receipts, invoices, canceled checks and account statements can support deductions claimed on your return. For each expense, keep enough information to show the amount, date and reason for the payment. If you claimed a tax credit that requires supporting information, preserve those as well.
Business and transaction records
For business owners, accounting records, payroll information, and records supporting business expenses can help substantiate the amounts reported on a return. Purchase and sale paperwork for property or other major assets also deserves attention because it can help establish your tax basis and any resulting gain or loss.
Organize your records before you need them
The length of time you should keep tax records depends on how long the IRS has to examine the return. For many returns, that period lasts three years, although certain situations require longer retention.
If you receive an audit notice, reviewing your records with an attorney can help you determine which information supports your return and how to respond to the IRS.
