*ahem* YES YES YES YES YES. Just wanted to start out making ourselves very clear, there. You absolutely need to keep your receipts for tax purposes if you’re a business owner - but there’s a little more to it than that. Ensuring that you have all of your receipts and that there’s a clear organizational system to them can save you time when your quarterly tax bill rolls around.
Why is it Important to Keep My Receipts for Tax Purposes?
We get this question a lot, usually followed up by, “You already have my QuickBooks, bank statements, invoices, and other records. What’s the point of having my receipts, too?” These receipts help us do a couple of things.
First, they allow us to check against your bank statements to see if anything is missing. They can also help us pinpoint if you used a different card than usual or if there are any large discrepancies. When we’re able to see your whole financial story for the year, we can more easily categorize your expenses to see where your money is going and how you can spend more effectively.
Additionally, The IRS regularly disallows expenses and therefore, deductions, without adequate supporting documentation. Your receipts have the line item details that tell the IRS exactly what was purchased and how much you spent for that item. For example, your bank statements are kind of like the restaurant receipt that you sign and send back - it just has the final total on it. Keeping receipts is more like the receipt that you receive from the restaurant, that shows you exactly what you ordered and how much each item was!
How Should I Store These Receipts?
One important thing to note is that cash register receipts are no longer ink printed on paper, but are thermal imaging paper that can start to fade within weeks or if exposed to heat. Have you ever left a receipt in a hot car? It turns black!
For this reason, among dozens of others, keeping digital records is the way to go. Whenever possible, have a receipt sent directly to your email account. When you can’t, take a picture of your receipt right away to store on your phone or scan it into your receipt management application At Hill Bookkeeping, we use AutoEntry (here’s a code to sign up and get a discount: insert link here) https://data.autoentry.com/signup/partner/G2666
We include AutoEntry with all of our bookkeeping packages for our clients because we know how important proper documentation is. Our goal is to make it as easy as possible for you.
That being said, it’s still a good idea to keep the physical copies at least until you scan them in OR your bookkeeper has finished reconciling your books that month.
Is There a Specific Way to Organize Them Digitally?
There’s no right or wrong way to keep them organized - the key is just to make sure that you have a system that works for you.
The more you’re able to categorize and organize (depending on your business type), the better your bookkeeper can break everything down for you at the end of the year. It’ll help you see where you’re spending your money, how you could be spending it better, and where you can make deductions. We coach our clients to plan for when they are audited, not if - when you are better prepared, it will make any audit go more smoothly.
Have questions about keeping your receipts? Schedule an appointment with us today to talk through your current records and see if our system is right for you!