7 Tips for Keeping Receipts Organized for Small-Business Owners

Often as consumers, we quickly say, “No, thank-you” when asked if we want a receipt, but this should not be the case, and especially not the case for small-business owners. You’re probably wondering if this is because small-business owners enjoy spending hours upon hours organizing receipts during the year and look forward to turning their receipts over to their accountant at year-end. Not really. Savvy business owners have learned the art of keeping receipts and they realize that if they fail to do this, the accuracy of their tax returns could be jeopardized. Actually, there’s no secret that receipts are a small-business owner’s best form of audit protection. As the owner of a small business, you must take seriously the process of collecting receipts and keeping them organized.

Every year the Internal Revenue Service (IRS) audits taxpayers, which includes small-businesses. As a result, these small-business owners (and other taxpayers) may end up paying additional taxes; that is, if they are unable to produce appropriate receipts. Small-business owners deduct thousands of dollars from their tax returns, for expenses such as, travel, meals, entertainment, automobiles, and cellphones, but they don’t always adhere to the IRS’ strict substantiation requirements. While small-business owners may be able to produce records proving they incurred the expenses, they, like every other taxpayer, must also produce adequate documentation to support their deductions. Without receipts to support a small-business owner’s claims, the IRS will disallow the deductions.

Following are some basic tips to help the small-business owner ensure he or she has business receipts to support deductions at tax time, or if the IRS comes calling.

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 what the business purpose was (in 2011, when it’s 2014).

3. Scan receipts and keep them at least six years.
This is helpful because the ink on a receipt may fade. If the IRS cannot read a receipt, it’s your issue, not theirs. 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 a number of 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 married up with your receipts.

IRS audits will continue to increase and the rules strictly enforced. The best course of action for small-business owners is to be prepare yourself with better set of books and receipts for all of their expenses.