Purchases, sales, payroll, and other transactions in the business generate supporting documents. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain information you need to be recorded in the books.
It is important to keep these documents because they support the entries in the books and on the tax return. Keep them in an orderly fashion and in a safe place. For instance, organize them by year and type of income or expense.
Generally, taxpayers must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out.
The period of limitations is the period of time in which taxpayers can amend a return to claim a credit or refund, or the IRS can assess additional tax.