What tax records should be kept and for how long?

If one is audited the IRS will not accept the taxpayer’s word as proof of expenses.  They want to see backup documents.  These backup documents should be kept for all items claimed as deductions on Schedule A or Schedule C, including receipts, invoices, mileage logs, etc.  You should also keep proof of all income,

 

including investments and interest or dividends.  In general records should be kept for at least three years.  However, some records, such as settlement statements, stock transactions, IRA information and business and rental property information should be kept longer, at least seven years.  IRS Publication 552 gives guidelines for keeping records and how long to keep those records.  If you are audited and did not keep good records, perhaps you can go back through your bank statements and mark the relevant payments.  Another thing to do is visit the companies involved and ask for duplicate receipts.   To prove mileage, you can go to your auto service dealer and get records showing your odometer reading for relevant periods.