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The Why, What, and How of Saving Receipts

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The Why, What, and How of Saving Receipts

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jacquelyn-wong-for-web.jpgMany of us are aware that saving receipts is an important way to be prepared not only for the annual tax return, but also for a potential audit… but we don’t know much more than that. What makes a receipt relevant to the IRS? Does any receipt qualify? Do I need to save all my receipts or just some of them? 

When it comes to these specifics, many business owners are unsure what to do. Here are my tips for saving receipts:

  1. Why Should I Save Receipts?
    An audit can be targeted, or it can be a completely random occurrence. That means that even if you are 100% sure that every inch of your tax return is justified, honest and accurate… you might still get audited. Saving your receipts is a good practice to follow. Your accounting services team should include receipts as part of its regular financial recordkeeping operation. 

  1. What is a Receipt?
    You probably think you know what a receipt is, but a receipt won’t be useful unless it has several key pieces of information. Before you file your receipt or give it to your bookkeeper, make sure it has the following information:
    • Name of business
    • Date of transaction
    • Amount of transaction
    • Business purpose
    • If there were multiple attendees, the names of the attendees

  1. What Receipts Should I Save?
    Generally speaking, use the value of $75 to figure out if a receipt is worth saving. If a receipt is over $75, make sure you save it. If you feel the purchase was significant despite being under $75, save the receipt just in case.

    If you’re worried about being overrun with receipts, keep in mind that generally you only need to save them for three years

    In addition to receipts, other documents you should save are bills (medical bills, student loan bills, mortgage bills), receipts for charitable donations, mileage and gas logs, and tax documents. Check out the IRS website for more information about recordkeeping for small businesses and self-employed people.

  1. How Should I Save Receipts?
    The key here is order. Ask your accounting services professional to help you design a system to keep these financial records well organized and easy to search through. Receipts can be stored digitally through a number of applications. The great part about these apps is that they allow you to scan the receipt right when you get it, uploading it into the system for you. This will eliminate the storage issue of actually saving all of that paper, as well as making your receipts visually easy to scan through and search. Also, a digital copy is forever and will not fade or deteriorate like paper receipts.

For more information about electronic document sharing, please read Sandra Bowman’s blog on using Hubdoc.

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Jacquelyn Wong

Author:

Jacquelyn Wong

Legal and Tax Disclaimer

This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.