Posted by Fred Lake

Keeping Receipts for Tax Purposes

Keeping Receipts for Tax Purposes

As the tax deadline approaches, many people are fond of frantically ransacking their home for various receipts to support their claim for a refund from Uncle Sam. Many people discover that it is nearly impossible to itemize every cent they spent in a year.  

However, with a good record of your receipt, you get to examine what you spend annually. This, however, is a factor of commitment because it makes it easy to develop this as a habit. 


Getting Organized 

There is no trick behind keeping receipts except organization which requires time and conscious effort. With this, it will be pretty easy to itemize. Whenever there is a significant expense, write it on the receipt and keep it in an envelope.

Many people need to develop dedication as it makes it easy. Also, if the process of keeping the receipt gets simplified, it will be easy, which will come with great rewards during tax time. One can create storage spaces at home, in your office. Something as simple as a shoebox or file with a binder will do. 

Also, it is a good idea to transfer the expenses on the receipts to a spreadsheet. Make it a habit to collate all relevant data and record and report your payments every month. It will be easier doing it for a month, compared to a year. 


Committing to the Process

It sounds pretty easy when we talk about organizing your receipts and payment. Even if you think it is a burden, it is beneficial. It is not a complicated process if you can be dedicated to it. It is about having an easily accessible storage system where you can transfer the receipts for every purchase you make. One can even have a file to take care of online purchases. 

It gets complicated when you have to look for a file cabinet, search for the file, etc., as it reduces the commitment to the process.

You might not be able to put a value on your little expenses. However, with a series of receipts for itemization when it's time for tax, you will be amazed how quickly little things can become enormous. For instance, paying taxes on an income that you did not make will affect your business's profit and longevity, all because you failed to deduct the actual expenses. 


Importance of Recordkeeping to Your Business 

The responsibility of storing your receipts alongside other essential business records lies in you. Here are possible reasons why you need to make this a policy for yourself and your business.

  • Track business progress: With records, you can monitor the progress of your company. You track its operation and improvement. It allows you to know essential changes you need to make. 

  • Make Financial Statements: Receipts are vital in the preparation of a profit and loss statement.

  • Know the Source of the Receipt: A typical business might work with many vendors and have various sources of income and expenditure. With the proper receipt, you can distinguish between taxable incomes and those that are not. You can also track your deductions. 

  • Aware of all Deductible Expenses: Every business gets busy, which is good. With receipts of your transaction, claiming all deductions will be possible.

  • Prepare Tax Returns: Business receipts are tremendously helpful in a tax year. A receipt will help you maximize your deductions and prepare the best tax return.


Categorizing Receipts for Taxes 

  1. Write down a series of categories that can help you organize your receipts like utilities, insurance, rent, supplies, equipment, etc. 

  2. Write the categories prepared above on various envelopes. Put these envelopes in a particular location, like your filing cabinet.

  3. Every receipt you collect should go to the correct folder every day to avoid misplacing your records.

  4. Every month, replace each folder and keep it in a cardboard file. Label with the period it covers, like May to November.


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THANKS FOR VISITING.

Fred Lake
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