Posted by CORE PERFORMANCE

Essential Tips to Organize Your Receipts for Tax Time

Essential Tips to Organize Your Receipts for Tax Time

While many people do not see receipt as a big deal, it is not so with small businesses. Savvy business owners need to keep receipts so that their tax returns can have a bearing during tax time. Besides, receipts can be lifesavers, especially during tax audits. 

Even if you are entitled to business deductions, you need receipts as your proof. Without the receipts, it will only be your word against the IRS, which might not end well. 

Here are various tips to keep your receipts organized as you prepare for tax time:


  1. Keep all Your Receipts

This point cannot be overemphasized. Your receipts will help immensely should you get into trouble with Uncle Sam.

One might think that engaging the Cohan Rule, which says you can engage "other credible evidence" and argue with Uncle Sam. Also, there is the possibility of relying on IRS Pub 463 that says receipts for expenses below $75 are not necessary.

However, getting into an argument with Uncle Sam is not worth it. You might lose more in terms of money and time, so keep your receipts. 

  1. Record the Purpose of the Receipt at the back

You might easily remember why you bought a photocopy machine. However, for dining and entertainment purposes, making such a note is pretty vital. It is dangerous to rely on your memory to remember who you went to dinner with at KFC some years ago and the business purpose. Making a note about it can be a lifesaver. 

  1. Scan Receipt and Keep for six years at least

Six years! That is how far back Uncle Sam can audit you and request documentation. However, by this time, the ink on your receipt might have faded. This makes it essential to keep electronic copies of the receipt. Make sure to have a backup in the cloud or anywhere, as you don't want to rely entirely on the integrity of such a gadget. 

  1. Use Your Smartphone to Take Picture

Thanks to technology today, you might not need to worry about the paper receipt. It is possible to make a note on the receipt and take a picture using your smartphone. Besides, there are a series of great apps that can help you track your expenses and keep these receipts. 

  1. Have a Daily Journal for Your Business

Yes, a daily journal for your business might be too much to ask when you consider all the tasks you have before you as a small business owner. Thanks to technology, however, you can use the calendar on Google or Outlook. 

When faced with an audit, the IRS agent might ask for your Outlook calendar as proof for all the deductions that you claim. They can help you in legal cases as well. 

  1. Credit Card Statements 

While credit card statements are essential, they are not sufficient in the absence of receipts. Uncle Sam might see that you spent $468 at Microsoft, but your credit card statement will not reveal what you buy. It could be computer accessories, repairs, software, and others. 

Such records are good, but they don't show details that are essential to an IRS auditor. 

  1. Avoid Cash

If you aim to have good records and concise documentation in an audit, stay away from cash. You can't easily track some money even though spending seems easy, and reconciling it with a receipt is next to impossible. 

To track your expenses better, go with credit or debit cards, in combination with receipt. 


Conclusion 

We wish Uncle Sam would stop auditing the business, but that is simply a dream. Audits will likely increase, with rules strictly enforced. However, a small business can be prepared by having a good receipt, keeping receipts and staying one-step ahead of Uncle Sam. 


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