Let' s make it simple. First keep all receipts. I use a scanner. Have a separate business bank account and use your business debit card for purchases. That will give you a nice record on your bank statement. Avoid using cash. Be extra careful about meals and entertainment. At IRS Forums, IRS says you should write down the business purpose of the meals and entertainment on the receipt. With good records you can feel safe in making every deduction. Bottom line is if you don't have receipts or bank records, you will lose out on deductions.
From all of the responses you have so far, you have been offered considerable knowledgeable responses from many experienced business members.
I would simply recommend your have a good financial information capture and reporting system that fits YOUR business. This not only includes receipt (disbursements) management but also invoice (income management) - in case of a sales and use tax audit in which case the state revenue department will want to look at both purchases and sales.
Such a system may be cloud based or desktop based, I might also suggest you connect with a good accountant and tax adviser especially if your state has sales and use taxes.
Back to the matter at hand, receipts can be scanned and retained on a hard drive or the "cloud" (but do not forget to have a backup system if you chose a hard drive - currently cloud based backups are reasonably priced) Some credit cards even allow you to take a picture of the receipt which can be upload to their servers so safe keeping. In my opinion such a system offers control and limited opportunity for misplacing the receipts.
Keeping paper receipts is another option, however the risk of loss, ink fading, tearing, self destruction (as in mission impossible) creates an additional management issue.all that being said the IRS has some comments on the subject.
I would also suggest looking at your state revenue requirements related to sales and use taxes records.
One last suggestion, try not to use cash to make disbursements - instead I suggest using a debit or credit card where you always have some sort of support should the receipt be lost.
Some practical advice... use credit/debit card or pay by check for ALL expenses, this makes a financial instruction your first line bookkeeper. I have yet to see an IRS or state examiner not take those as proof of payment. Yes, the law says keep all those little receipts, but being practical, I don't keep them
I tell my clients (CPA) to hold on to receipts (or any other supporting tax documentation) for income or expenses for a period no less than three years from the date you file the business tax return(s) for the year the activity occurred. For example, for the 2016 year, business tax returns (depending upon the type of entity) were due by March 15 of 2017 unless the returns were put on extension. If the returns were filed timely then the IRS or state authorities normally have three years to audit the return from the date the return(s) were filed. So for timely filed 2016 return(s) I would recommend you hold on to the 2016 documentation until at least March 15, 2020. If the return(s) were put on extension, then I would keep all receipts for at least three years from the date the tax return(s) were actually filed.
You need to keep receipts if you are using your business checking account for personal purchases.
If your business checking account is solely used for business then there is not a need to keep receipts for purchases under $75.
But, if you run personal purchases through your business checking account you SHOULD ABSOLUTLEY keep all receipts to verify if personal or business purchase.
You should keep as many of your expense receiptsthat you can. Those receipts for items that you used for your small business will balance out the income and help you in the long run. Just keep a shoebox or a plastic envelope in your car so that it's with you at all times. Then as soon as you get a receipt put it in the box or envelope immediately. Believe me people come into my office not only with shoeboxes full but large plastic tubs full of expense receipts. As you can guess this tax return was not completed in a day!
Its a good idea to save all your receipts, however, but your bank statements & credit card statements do that job unless you pay in cash. A good accounting software is very helpful to maintain the transactions and its history and some give you an option to attach the receipts to it for further clarity. As a small business owner you should implement the accounting system which is a great way to be compliant with taxes at the end of the year and quarterly. H
Hope this answers your question!
Business from Tolleson, AZ
Answered on Jun 12th, 2017
Hi Esther,
It is always advisable to save all receipts...either originals or scanned copies. The IRS has been accepting scans since 1997 so it's not necessary to keep paper receipts anymore.
To add on to a previous comment, although bank and credit card statements prove the date and location of an expense, it does not document the business purpose of the transaction or the details of what was purchased. You could go to, say, Wal-Mart and purchase office supplies (business) and groceries (personal) with your business debit card. With no receipt, you would have no way to substantiate the deductible part of the purchase. Even if you never use your business card to pay for personal expenses, keep the receipts. With places like Wal-Mart, their product offerings are so vast that someone could easily bury a personal expense in the business account.
As an example, if you have a receipt from Staples and it shows you purchased ink and paper, it can be easily established that office supplies were bought. No further action is necessary. If, however, you have a receipt from a restaurant, it should be notated somewhere the details of the meal..."Met with John Doe of Acme Company (potential client)". You can either write directly on the receipt or keep a separate log of the business purposes of all your meals. This is especially important for business meals since it's one of the more frequently abused deductions.
Yes, you should save your receipts for a minimum of three tax years, but, preferably six. The IRS would need to see receipts in an audit and will disallow deductions if you do not have receipts. A good way to keep them is to scan them and keep the electronic copy. This is acceptable to the IRS.
I tell all my tax clients to save any receipt they perceive as related to their business. If they do this I can accept or reject a receipt as being business related. It's the receipt they don't bring that could have been accepted that can't be a business expense. Some of my clients scan their receipts and give them to me in a pdf This prevents future fading of a receipt and easy access in the event of a future need. Additionally if they bring every thing tallied in a Excel worksheet I can cross reference the pdf and the worksheet for my due diligence. As much as I see QB as the McDonalds of accounting I do pay for the annual version so I can open their QB fie. My preference is an accounting software that won't allow the user to easily change from accrual to cash basis reports. And QB is one of the few, if there are others, that allows this switching.
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Answers (1-10)
Let' s make it simple. First keep all receipts. I use a scanner. Have a separate business bank account and use your business debit card for purchases. That will give you a nice record on your bank statement. Avoid using cash. Be extra careful about meals and entertainment. At IRS Forums, IRS says you should write down the business purpose of the meals and entertainment on the receipt. With good records you can feel safe in making every deduction. Bottom line is if you don't have receipts or bank records, you will lose out on deductions.
From all of the responses you have so far, you have been offered considerable knowledgeable responses from many experienced business members.
I would simply recommend your have a good financial information capture and reporting system that fits YOUR business. This not only includes receipt (disbursements) management but also invoice (income management) - in case of a sales and use tax audit in which case the state revenue department will want to look at both purchases and sales.
Such a system may be cloud based or desktop based, I might also suggest you connect with a good accountant and tax adviser especially if your state has sales and use taxes.
Back to the matter at hand, receipts can be scanned and retained on a hard drive or the "cloud" (but do not forget to have a backup system if you chose a hard drive - currently cloud based backups are reasonably priced) Some credit cards even allow you to take a picture of the receipt which can be upload to their servers so safe keeping. In my opinion such a system offers control and limited opportunity for misplacing the receipts.
Keeping paper receipts is another option, however the risk of loss, ink fading, tearing, self destruction (as in mission impossible) creates an additional management issue.all that being said the IRS has some comments on the subject.
https://www.irs.gov/businesses/small-businesses-se...
I would also suggest looking at your state revenue requirements related to sales and use taxes records.
One last suggestion, try not to use cash to make disbursements - instead I suggest using a debit or credit card where you always have some sort of support should the receipt be lost.
Some practical advice... use credit/debit card or pay by check for ALL expenses, this makes a financial instruction your first line bookkeeper. I have yet to see an IRS or state examiner not take those as proof of payment. Yes, the law says keep all those little receipts, but being practical, I don't keep them
Hi Esther,
I tell my clients (CPA) to hold on to receipts (or any other supporting tax documentation) for income or expenses for a period no less than three years from the date you file the business tax return(s) for the year the activity occurred. For example, for the 2016 year, business tax returns (depending upon the type of entity) were due by March 15 of 2017 unless the returns were put on extension. If the returns were filed timely then the IRS or state authorities normally have three years to audit the return from the date the return(s) were filed. So for timely filed 2016 return(s) I would recommend you hold on to the 2016 documentation until at least March 15, 2020. If the return(s) were put on extension, then I would keep all receipts for at least three years from the date the tax return(s) were actually filed.
I hope this helps.
You need to keep receipts if you are using your business checking account for personal purchases.
If your business checking account is solely used for business then there is not a need to keep receipts for purchases under $75.
But, if you run personal purchases through your business checking account you SHOULD ABSOLUTLEY keep all receipts to verify if personal or business purchase.
You should keep as many of your expense receiptsthat you can. Those receipts for items that you used for your small business will balance out the income and help you in the long run. Just keep a shoebox or a plastic envelope in your car so that it's with you at all times. Then as soon as you get a receipt put it in the box or envelope immediately. Believe me people come into my office not only with shoeboxes full but large plastic tubs full of expense receipts. As you can guess this tax return was not completed in a day!
Its a good idea to save all your receipts, however, but your bank statements & credit card statements do that job unless you pay in cash. A good accounting software is very helpful to maintain the transactions and its history and some give you an option to attach the receipts to it for further clarity. As a small business owner you should implement the accounting system which is a great way to be compliant with taxes at the end of the year and quarterly. H
Hope this answers your question!
Hi Esther,
It is always advisable to save all receipts...either originals or scanned copies. The IRS has been accepting scans since 1997 so it's not necessary to keep paper receipts anymore.
To add on to a previous comment, although bank and credit card statements prove the date and location of an expense, it does not document the business purpose of the transaction or the details of what was purchased. You could go to, say, Wal-Mart and purchase office supplies (business) and groceries (personal) with your business debit card. With no receipt, you would have no way to substantiate the deductible part of the purchase. Even if you never use your business card to pay for personal expenses, keep the receipts. With places like Wal-Mart, their product offerings are so vast that someone could easily bury a personal expense in the business account.
As an example, if you have a receipt from Staples and it shows you purchased ink and paper, it can be easily established that office supplies were bought. No further action is necessary. If, however, you have a receipt from a restaurant, it should be notated somewhere the details of the meal..."Met with John Doe of Acme Company (potential client)". You can either write directly on the receipt or keep a separate log of the business purposes of all your meals. This is especially important for business meals since it's one of the more frequently abused deductions.
Hello Esther,
Yes, you should save your receipts for a minimum of three tax years, but, preferably six. The IRS would need to see receipts in an audit and will disallow deductions if you do not have receipts. A good way to keep them is to scan them and keep the electronic copy. This is acceptable to the IRS.
I tell all my tax clients to save any receipt they perceive as related to their business. If they do this I can accept or reject a receipt as being business related. It's the receipt they don't bring that could have been accepted that can't be a business expense. Some of my clients scan their receipts and give them to me in a pdf This prevents future fading of a receipt and easy access in the event of a future need. Additionally if they bring every thing tallied in a Excel worksheet I can cross reference the pdf and the worksheet for my due diligence. As much as I see QB as the McDonalds of accounting I do pay for the annual version so I can open their QB fie. My preference is an accounting software that won't allow the user to easily change from accrual to cash basis reports. And QB is one of the few, if there are others, that allows this switching.