Have you ever been in the checkout line and after you paid for your items the cashier asked, “would you like your receipt?” To save the paper and your hassle of cleaning up the wads of crumpled receipts you have piling on the floor of your car, you reply, “no, thanks” and go about your day. Fast forward to the following tax year and your small business is being audited! (Yikes 😲) You expensed some things from your shopping trip that day to your small business and now have to show proof of payment, but you said you didn’t need the receipt 😤😤😤so basically you’re up a certain creek without a paddle. The moral of this story…YOU NEED TO KEEP YOUR RECEIPTS FOR ALL BUSINESS EXPENSES! According to the IRS, you should keep records for a minimum of 3 years. But there is an exception to this rule, like most. The IRS requires businesses to keep receipts for all business expenses of $75 and up. Note that if your business is audited, you'll still need to be able to provide basic information about expenses under $75, such as the date of the purchase and its business purpose. (So you might as well save it anyway!)
HOW you keep your receipts however, is a totally different story. Can you just keep your paper receipts organized in a folder? Sure. Is that a pain? Probably. Here’s where technology can play a big part in helping you get and stay organized. It’s deja vu and you’re in that same store buying something for your business. This time, you take your receipt. But instead of crumpling it up and throwing it in your backseat, you snap a quick picture of it on your phone and upload it to an app or your Google Drive. THEN you crumple it up and throw it in the backseat of your car. You have a record of your purchase to expense come tax time and don’t have to worry about keeping track of where you put the receipt. If you aren’t carefully tracking your receipts, you could be missing out on deductions!
A lot of stores now even give you the option to have your receipt emailed to you so you can just store it in a folder. And let’s face it, a majority of people barely even go to brick and mortar stores anymore. Online shopping and subscriptions make it easy for you to keep track of your receipts because they’re emailed to you. Creating a separate folder in your email to house these receipts is just the click of a button. Paper receipts on the other hand can be a pain to keep track of. The easiest solution to this is to use your Accounting Software. QuickBooks Online comes with a free app where you can easily snap pictures of receipts that’ll be saved with the transaction, forever in the cloud. If you don’t use accounting software, an easy solution is to scan all your paper receipts and store them in your email or a Google Drive folder. It eliminates the need to hold on to mounds of papers (that’ll eventually fade) and can be easily organized and accessed.
General Record Keeping Rules for Your Small Business:
Always keep receipts, bank statements, invoices, payroll records, and any other documentary evidence that supports an item of income, deduction, or credit shown on your tax return.
Most supporting documents need to be kept for at least three years.
Employment tax records must be kept for at least four years.
If you omitted income from your return, keep records for six years.
Expenses that are less than $75 or that have to do with transportation, lodging or meal expenses might not require a receipt. But you still need to tell the IRS where and when the expense occurred, and what it was for.
In the long run, taking 10 seconds out of your day to document a purchase can save you hours come tax time. Struggling with your bookkeeping and staying organized with your expenses? Consult with us at ASE Group for a systematized approach to your cash flow and taxes.