Most people dread doing their taxes because it takes time, costs money, and it hurts when you find out you owe the IRS. It doesn’t have to be this way. Read on to learn what receipts to save for taxes, and some tips to save time and money that can make tax time less painful.
What Is A Business Tax Receipt?
A business receipt is a receipt for anything that you purchased for your business. For example, if you purchase a desk for your business, the receipt for your desk would need to be saved since you can write it off as a business expense.
Receipts are important because they are back-up documentation that support the business deductions your tax professional will help you take at tax time. In addition to receipts, other important documentation for expenses and income includes sales slips, paid bills, invoices, deposit slips, canceled checks, cash register tapes, deposit information, receipt books, invoices, and 1099-MISC forms.
This documentation will also help you in the future if you are audited. People fear being audited, but if you work with an honest tax professional and keep good records you should be fine.
How Long To Keep Tax Receipts
According to the IRS, you need to keep your records for a minimum of 3 years. However, you may want to refer to their Period of Limitations as there are special circumstances that require you to keep records for a longer period of time. For example, if you underpaid your taxes by 25% or more, the IRS can go back as far as six years.
Keeping good records doesn’t have to mean stashing thousands of paper receipts in your office. Nowadays, there’s a pretty good chance that your records are online and just a click away. Your online bank account and credit card accounts can be mined for most of the information about your spending. However, if you decide to close a business credit card or checking account, you should download PDF copies of your statements so you do not lose that documentation.
What Receipts Should You Keep For Taxes?
Do you need to keep a receipt for every little expense in your business? The short answer is no. The $75 rule explains this in more detail.
The $75 Receipt Rule
Generally, you don’t need receipts for items under $75, unless it is a lodging expense. See the full details for the $75 rule in Publication 463.
How To Manage Your Business Tax Receipts
Keeping receipts for a minimum of three years may sound daunting, but there are a myriad of resources that exist to make this an easy task to manage. For starters, you can get into the habit of virtually saving copies of virtual receipts and statements. For example, you can create a folder on your computer for each month of the year and simply place all your receipts, invoices, etc., in that folder.
You may have bills that are mailed the old-fashioned way. Rather than storing these in a folder somewhere in your office, why not go digital? While a scanner may be helpful, it is not necessary. Simply snap a picture of the receipt on your cell phone and email the photo to yourself. You can save that image in the folder you created for the month and throw the physical receipt away. For an added layer of protection, you can upload your documents to the cloud!
Make it a Habit
Taxes are a headache for most people because they procrastinate and only think about it once a year. This makes it a huge burden because you are scrambling to find things and remember expenses that happened a year ago. Make it easier on yourself by creating good habits now that will make it easier for you in the future. For example, you could try keeping physical receipts in an envelope or folder in a special area of your office or house. Try to keep the receipts in order by date, and don’t forget to jot down something on the receipt to help you remember what the expense was for (for example, if you took a client out to lunch, write down the name of the client on the receipt).
Another option is to leverage technology and one of the many applications that exist to help you keep good records.
Leverage Technology Using Tax Receipt Apps
Shoeboxed is a handy little app that allows you to organize receipts by taking photos of your receipts and uploading them to the app. Need to track mileage? This app also has a feature that allows you to track your mileage using the GPS in your phone.
Neat is another handy app that allows you to organize your receipts. When you take a photo of your receipt it automatically captures and uploads the data. It can even sync with things like QuickBooks and TurboTax.
There are a ton of different apps out there to help you with organizing your receipts. Try a few out to figure out which one is best for you.
Manage Your Business Finances
At the end of the day, a few minutes a week can save you a lot of time and stress at the end of the year. Start building good organization habits now, and don’t be afraid to check in with your tax preparer if you have specific questions about your business. They’ll appreciate that you’ll be prepared and have everything gathered and organized during tax season.
And remember, if you need help managing payments and invoices for your business don’t forget that PaySimple has a 14 day trial to help you keep great records and streamline your business.