7 Tips for Small Business Owners for keeping all receipts to support deductions at tax time or during an IRS Audit.
Sheldon L. Richards, CPA, MS
Certified Public Accountant, Investor, and Entrepreneur
1. Keep all receipts. This point cannot be overstated. Developing a systematic process of filing receipts can save you a lot of time and money if you’re audited.
2. Make notes on receipts about their business purpose. This is an especially great idea for dining and entertainment expenses. It can be easy to recall why you bought a copier, but without a note, it may be difficult to remember who you went to dinner with and the business purpose.
3. Scan receipts and keep them for at least six years. This is helpful because the ink on a receipt may fade. If the IRS cannot read a receipt, then you will still be responsible for providing clear proof to claim the deduction. The IRS allows electronically stored receipts. However, it’s probably a good idea to back-up stored receipts because if your hard drive crashes, the IRS won’t care.
4. Take a picture of receipts with your smartphone. This is a great idea and there are several apps that can assist you. With today’s technology, it’s easy to make a note on the receipt and then take a picture of it. But remember to back-up those app files too.
5. Have your receipts emailed to you, if offered. This is a great idea and a number of vendors offer this as a service to you.
6. Don’t rely on bank statements, credit-card statements, or canceled checks. These are important, yet insufficient without actual receipts. The IRS may see on the credit card statement that you spent $435 at Staples, but they have no idea exactly what you bought. It could be that you purchased movies and useless technical gadgets, and not the office supplies you declared as expense. For recordkeeping purposes, bank statements, credit card statements and canceled checks are excellent, but the detail of the transaction, which the receipt provides, is critical for an IRS auditor.
7. Avoid cash. This is truly important. Cash is hard to track, easy to spend, and nearly impossible to reconcile with receipts. Use debit and credit cards; they provide you with monthly statements that can be easily reconciled to your receipts.