NOT SURE WHAT THE IRS WANTS?

Here is a checklist for IRS documents.

Income.
To document income, you’ll need copies of your bank statements, copies of checks you’ve deposited, copies of any 1099s you received, and, if you have nontaxable income, copies of documents showing the source of that income (for example, from an inheritance). Remember, the IRS is less interested in the business income you reported than in the income it thinks you failed to report. This means your job is not really to prove the amount of income your business earned, but to prove that any income you didn’t report came from a nontaxable source.

Business expenses.
To document most business expenses, you must keep records showing what you bought, who you bought it from, how much you paid, and the date of the purchase. In most cases, you can prove this with your receipt and a cancelled check or credit card statement (which proves that the receipt is really yours).

Vehicle expenses.
To document vehicle expenses, you must keep records of the dates of all business trips, your destination, the business purpose of your trip (for example, to meet with a client or scout a retail location), and your mileage.

Meals and entertainment.
To document meals and entertainment, you must keep records of what you paid for, who you bought it from, how much you paid, the date of purchase, who you were with, and the business purpose of your meeting. The first four facts are often included on a receipt; the remaining two you can record in a date book or calendar or on the receipt itself.

Use of property.
To document your use of property, you must keep records of how much time you spent using it for business and using it for other purposes. This rule applies to "listed property," items that the IRS believes people often use for personal purposes, including computers and cameras. (There really is a list of listed property, and you can find it in IRS Publication 946, How to Depreciate Property.) You might also want to keep track of the time you spend in your home office, to prove that you use it regularly. You can keep these records in a log or journal.