Recordkeeping & Preparer Responsibilities — What IRS Section 10.34 Means for You

This post is part of a 9-part series called “Turn Your Side Hustle Into a Tax-Saving Business.”
In this series, you'll learn how to legally lower your taxes, take advantage of IRS rules, and treat your side hustle like a real business.

Good Records = Great Deductions

If you want to claim tax deductions with confidence, you need one thing:
Proof.

That means:

• Receipts

• Mileage logs

• Invoices

• Bank and credit card statements

• Written explanations for expenses like meals or gifts

The IRS doesn’t ask you to be perfect—but they do expect you to be prepared.

What Is IRS Section 10.34?

IRS Circular 230, Section 10.34, explains what tax preparers must do when helping clients prepare returns.

But it also protects you—the taxpayer—by ensuring your preparer:

• Is being honest

• Only takes legal positions

• Doesn’t “pad” deductions to get a bigger refund

Here’s a simple breakdown of what it says.

Responsibilities of the Tax Preparer

Under Section 10.34, your tax pro must:

✅ Not take unreasonable or unsupported tax positions
✅ Make sure deductions and claims have a reasonable basis
✅ Tell you if a position could result in IRS penalties
✅ Rely on records you provide, but not knowingly file incorrect info
✅ Keep up with tax law and act ethically

⚠️ If a preparer knowingly helps you claim false deductions, they can be fined or lose their license.

Your Responsibility as the Taxpayer

You are responsible for:

• Providing accurate and complete information

• Keeping documentation for your deductions

• Asking questions if you’re not sure something is legit

• Saving all records for at least 3 years (7 if there's a chance of an audit)

What Records Should You Keep?

Here’s a quick checklist:

You don’t have to use fancy software (though it helps). A spreadsheet, folder system, or bookkeeping app works just fine—as long as it’s consistent.

A Note for DIY Filers

If you’re preparing your own taxes, you’re responsible for everything in this post—both as the taxpayer and the preparer.

That’s why it’s smart to:

• Keep your records organized throughout the year

• Use tools like QuickBooks, Keeper, or Wave

• Know when to bring in a pro—especially if your business is growing

What Happens If You Don’t Keep Good Records?

You could:

• Lose your deductions

• Pay more in taxes

• Face penalties and interest if audited

• Be flagged for future IRS scrutiny

And your tax preparer? They could also be penalized if they knowingly include inaccurate information—so it’s in everyone’s best interest to play it straight.

Final Thoughts

Smart tax strategies start with good recordkeeping. When you combine honest, clear records with a tax preparer who follows the rules, you’re setting yourself up to save money and sleep better at night.

In our final post, we’ll cover one more powerful strategy—how to hire your kids in your business and keep the money in the family (legally!).

👉 Read -- Hiring Your Kids — A Family-Friendly Tax Strategy