How many times have you found an old crumpled up receipt hidden somewhere deep beneath the passenger seat of your car or jammed into your wallet? Regardless of how insignificant you think these pieces of paper may be, as a business owner, you must keep your receipts for bookkeeping and tax purposes. Keeping receipts for all of your business expenses will not only keep your bookkeeper sane, it will also assist you and your CPA at tax time in getting an accurate number for your business deductions.
Many of you may be thinking, “Why should we keep our receipts? We’re living in a digital age” or “Why keep a paper trail, if it will only create more clutter? Right?” Wrong. We’ve compiled a list of tips to help you keep accurate, organized records for your business.
1. Keep Every. Single. Receipt.
This point cannot be overstated. It is just as important to keep the $2.38 receipt from Staples for pencils, as it is to keep the $1022.54 receipt for the new laptop you purchased for your business. If you were ever subject to an IRS audit, the auditor will want to see receipts for every expense for which you have claimed a deduction.
2. Make notes on receipts about their business purposes.
This is an especially great idea for dining and entertainment expenses. It can be easy to remember why you bought a copier, but it could be a lot harder to remember who you went to dinner with at that fancy steakhouse three years ago and what the business purpose was.
3. Scan receipts and keep them for at least six years.
The IRS can come looking for documentation to support expenses up to six years back in some cases. Purchasing a scanner and storing them on an external hard drive ensures that you will have adequate documentation in the case of an audit. You can’t count on the ink from a receipt not fading in the next 6 years, so it’s better to be safe than sorry.
4. Take a picture with your Smartphone.
With today's technology, it's easy to say “Forget the receipt, I'll just make a note on the receipt and then take a picture of it.” This is a great idea and there are a whole host of apps for the iPhone and Android that can help you better track your expenses. As long as you save all of these pictures in a safe place (external hard drive, Google Drive, Dropbox, etc.) you will have no problem reproducing these receipts when tax time comes or in the case of an IRS audit.
5. Don’t rely on credit card statements and canceled checks.
Credit card statements and canceled checks are important documents but are insufficient without a receipt to detail the expense. The IRS may see on the statement that you spent $85 at Lowe’s but they don’t know what was purchased on this shopping trip. Statements may be sufficient for your bookkeeper but the detail of the expense is critical for an IRS auditor.
6. Try to avoid using cash for business purchases.
Dave Ramsey may be adamant about using cash for purchases to stay within your budget, but using cash makes it difficult to keep good records for bookkeeping and adequate documentation for an audit. Cash is hard to track, easy to spend and nearly impossible to reconcile with receipts. Stick to debit and credit cards for business purchases to better track your expenses and leave you with adequate documentation to support the expense.
All small business owners know that it can be burdensome to keep track of all those receipts. However, for accounting and tax purposes, you will have to prove that everything expensed to your business is correct and necessary. The extra time and effort it takes to keep accurate records will be worth the extra burden if you were ever subject to an IRS audit.
Need help tracking receipts? Our bookkeeping services will integrate with your business, allowing you to snap a picture of your receipts and email them to us for safe keeping. We can even get you caught up if you've been putting off this important task. Contact us today for help.