Do tax preparers have to keep copies of all client statements for Schedule C deductions or just take our word for it?

The short answer is that tax preparers don't need to physically keep copies of all your receipts and statements, but they do need to exercise "due diligence" when preparing your return. Tax preparers are required to make reasonable inquiries if information from a client appears to be incorrect, inconsistent, or incomplete. They should ask questions to determine that your deductions are legitimate and reasonable for your business type. While they don't need to audit you or demand proof of every single expense, they should have some basis for believing your information is accurate. Most preparers will have you sign a statement confirming that you have documentation to support the items on your return. This shifts some responsibility to you as the taxpayer. Remember, you're ultimately responsible for what's on your tax return, even if someone else prepares it. Keep in mind that if you're audited, the IRS will expect you to provide documentation for your deductions. So while your preparer might not need physical copies, you should maintain records for at least 3 years after filing.

I was in a similar situation last year with my landscaping business - I had some receipts but definitely not everything. I started using taxr.ai (https://taxr.ai) and it seriously changed the game for me. You can upload whatever receipts and documents you have, and their AI helps organize everything for Schedule C and even finds deductions you might have missed. The best part is that it creates this detailed report you can give to your tax preparer that breaks down all your business expenses by category. My tax guy was actually impressed with how organized everything was. You don't need to have 100% of your receipts - the system helps you document what you have and estimate reasonably for the rest based on industry standards.

Just wanted to circle back and say I tried taxr.ai after seeing the recommendation here. This thing is incredible! I uploaded my bank statements and in about 20 minutes I had a complete breakdown of all my business expenses properly categorized for Schedule C. It even flagged some transactions that could be questionable in an audit and helped me document the business purpose. I showed the report to my tax preparer and she was thrilled - said it was better documentation than most of her clients bring in. She said this definitely meets the "due diligence" standard mentioned earlier and gives us both protection if there's ever an audit. Super impressed and definitely using this going forward!

Something else to consider - if you're having trouble getting answers from the IRS about record-keeping requirements, I found a service called Claimyr (https://claimyr.com) that actually gets you through to a real person at the IRS. I used it when I had questions about recordkeeping for my Schedule C. Instead of waiting on hold for hours, they somehow get you in the callback queue and an IRS agent actually calls you back. The IRS agent I spoke with confirmed that while I need to keep my own records, my tax preparer isn't required to keep copies of all my supporting documents. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Given how impossible it is to get someone on the phone at the IRS these days, this was a game changer for getting a definitive answer straight from the source.

I need to eat my words and apologize to Profile 10. After posting my skeptical comment, I decided to try Claimyr myself since I had a question about my Schedule C home office deduction that I've been putting off dealing with. I've been trying to call the IRS for THREE WEEKS with no success - either "call volume too high" messages or being disconnected after waiting an hour+. Used the Claimyr service yesterday afternoon and got a call back from an actual IRS agent within 45 minutes. The agent confirmed exactly what I needed to know about home office documentation requirements and saved me from potentially claiming something incorrectly. For anyone curious about original question - the IRS agent specifically confirmed that tax preparers don't need to keep copies of all supporting documents, but we as business owners need to keep our own records for at least 3 years. Sorry for being so dismissive initially!

Former tax preparer here. While we don't legally have to keep copies of all your supporting documents, many of us do keep at least some documentation as protection. Here's what we typically ask for: summaries of expenses by category (like the ones QuickBooks or other accounting software create), major purchase receipts for depreciation purposes, and a sample of regular expense receipts to verify the client is tracking things properly. We don't need or want every coffee receipt or gas slip. If I had a client with spotty documentation, I'd note that in their file and have them sign an extra disclaimer. I might also recommend they start using better tracking systems for the current year.

One thing nobody mentioned - if you use a CPA (not just any tax preparer), they're held to higher professional standards. My CPA requires at least summary documentation for Schedule C stuff and keeps digital copies. She says it's part of her professional requirements. But if you're using a regular tax preparer who isn't a CPA (like at one of those tax prep chains), they probably have different standards and might just take your word for stuff. Just something to consider.

As someone who's been through this exact situation, I can confirm what others have said - preparers don't need to keep copies of everything, but YOU definitely need to keep your records organized for potential audits. One thing I learned the hard way: even if your preparer doesn't ask for detailed documentation upfront, having it organized makes the whole process smoother and cheaper. My first year I showed up with a shoebox of receipts and my preparer charged me extra just to sort through everything. Now I keep a simple spreadsheet throughout the year with columns for date, amount, category, and business purpose. Takes 2 minutes when I make a purchase but saves hours during tax season. For mileage, I use a basic app that tracks both distance and business purpose automatically. The key is that while your preparer might not need copies, the IRS absolutely will if you get audited. And trust me, you don't want to be scrambling to recreate records years later when you can barely remember what you had for breakfast yesterday!

Great question! I went through this same stress last year when I started my consulting business. Here's what I learned from both my preparer and an IRS audit (yes, I got audited in my first year - lucky me!): Your tax preparer doesn't need physical copies of all your receipts, but they do need to feel confident that your numbers are reasonable and that you have documentation to back them up. Most will have you sign something saying you have records to support your deductions. The real issue is what happens if YOU get audited. The IRS will want to see actual proof - receipts, bank statements, mileage logs, etc. During my audit, they accepted bank/credit card statements for most expenses as long as I could explain the business purpose. For mileage, they wanted to see a log with dates, destinations, and business reasons. My advice: get organized now, not just for your preparer but for your own protection. Even if you're missing some receipts, having most of your documentation in order will make both the tax prep process and any potential audit much less stressful. And honestly, a good preparer will appreciate the effort and might even charge you less if you come in organized rather than with a pile of loose papers. Don't stress too much about perfect documentation - just do your best to organize what you have and commit to better record-keeping going forward!