From paperclip purchases to company vehicle purchases, receipts are always going to be required to claim an expense as a deduction. If you are like most consumers, you reply with, “No, thank you.” when asked if you would like a receipt at the register. A big pain point that most business owners face is keeping track of all their receipts and proper documentation. With a few simple habits and consistency, receipt management is easy and valuable to your business. Follow these five easy steps to make your life easier and save yourself from a messy binder of paperwork!
1. Digitize Your Receipts
The IRS can audit records from as far back as six years ago, and receipts often fade with time. Therefore, it’s best to keep both the physical and a digital copy of all receipts. You can either scan them with a copier machine or take photos of them with your phone. This is also easier to organize them with a naming convention that works best for you and will make it easier to search for copies faster if needed. It is also important to use a cloud-based system, that way the files can’t accidentally be lost. I personally have great experience with using the receipt scanner in my QuickBooks app and Dropbox for other documentation. You can also opt to have your receipts emailed to you as an easy way to keep a digital receipt.
2. Make Notes on Receipts
Some receipts don’t offer a whole lot of information, and that can cause problems when you are trying to remember something as specific as what vehicle that oil change receipt was for three years ago. Its as easy as a quick note on each receipt before scanning them and filing them. In my experience, a blue or red pen shows up best on a scanner or while taking a photo. If there are many people handling the receipts, make it a habit to have everyone initial each note on their receipts.
3. Don’t rely solely on Bank Statements or Credit Card Statements
This is especially true for stores such as Walmart or Amazon because you could honestly buy anything and everything there! If the IRS is looking at your statements and sees a $367.89 transaction at Staples, they aren’t going to know what you bought. Bank and credit card statements unfortunately don’t provide enough information to go off of, and they don’t prove that the transactions are business related.
4. Avoid Cash When Possible
Cash is hard to track and even harder to prove that it was spent on business transactions. For some people, cash is easier to spend and thus resulting in spending more. Overall, avoid cash when possible. Most vendors that won’t accept a debit or credit card will typically accept a check. This is a better bet than cash and has a paper trail.
5. Schedule Time to Organize and File
When you are tasked with a project you don’t want to do, its easy to push it off until it’s piled up and unmanageable. I recommend scheduling time at the end of each month to make sure everything is noted, scanned, and filed correctly.
We know it’s a daunting task, but it’s got to be done. Use these tips to help fulfill your tax obligations and let us know how they have worked for you!