The Importance of Savings Receipts in Business
If you are a business owner, you’ve likely heard the advice to keep track of your receipts related to any business expense. This is completely accurate advice for a few reasons, most importantly to keep a running total of your expenses month-to-month.
On top of that, keeping track of your expenses will help you understand how much profit your business is generating. When you are aware of your total expenses and total profit, you can make better business decisions and feel more comfortable all around regarding your finances.
So, what is the proper protocol for saving business receipts and how long should you save them? The answer to these questions involves a few details that will depend on your business. However, we can share our knowledge here to help guide you to making the right call when it comes to your business receipts.
Expense Receipts: When Do I Keep Them?
In general, you should avoid discarding or deleting any record of money spent related to your business. This could include, but is not limited to:
- Invoices for goods or services
- Monthly statements of ongoing services
- Supplies
- Utilities
- Equipment
- Software services
- Cleaning services
- Business Meeting Expenses (travel, lodging, meals, etc.)
While there are caveats to some of these items, it would be better to keep record of these expenses even if you don’t end up using them all for business write-off’s come tax filing.
Business Expense Receipts: How Do I Keep Them?
How you store your business receipts is ultimately up to you, but we have some helpful tips that can help you stay organized!
If you have paper receipts to store and organize, we recommend creating a filing system that sorts your receipts by type (think services, supplies, meetings, etc.) Within a filing system (even a homemade box filing system), you can organize your receipts so that if you need to reference a number or amount, you know exactly where to go to find it.
We also recommend sorting and organizing your receipts by year, since your business expense receipts will be used when calculating your taxes.
One helpful hack to organizing paper receipts is to turn them into a digital file. Simply take a photo or scan the receipt digitally and then store it within a folder on your device. We recommend using Google Drive or Dropbox to create folders that can be sorted or stored quickly and easily. A helpful way to label these files is to title them as “Vendor Name, Date, Amount.” This makes searching for specific receipts simple.
With your digital receipts (think email receipts or invoices received after a purchase or transaction), these can similarly be stored in your electronic filing system. By creating labels and folders for each type of expense, you will have an organized system that is easy to maintain.
Many bookkeepers will also track and note your expenses in your books. However, keeping your receipts is still important in case there is a discrepancy or you need to verify exact amounts, dates, etc.
Expense Receipts: How Long Do I Keep Them?
This commonly asked question is one that many business owners inquire about because of the amount of receipts that can add up over time when running a business. Despite there being potentially many to store and organize, it is our recommendation that you keep your business expense receipts for a minimum of 7 years.
The IRS has certain criteria for keeping business receipts:
- Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
- Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
- Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
- Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
- Keep records indefinitely if you do not file a return.
- Keep records indefinitely if you file a fraudulent return.
- Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
Because some stipulations could occur within your business over time, it is a safe measure to keep your business receipts for 7 years, minimum, to ensure you are not without evidence of your expenses should something arise in the future. While the IRS could require documentation during an audit at any time, this time frame provides you with a safety net for your business should an investigation or re-filing need to occur.
Managing Your Receipts to Protect Your Business
Keeping track of your receipts is not meant to be a headache for you, but instead, a way to protect your records and your business.
At 1428, we believe in supporting our clients with their record keeping and enjoy providing advice and support around this topic. Should you ever have any questions recording your expense receipts, don’t hesitate to reach out!
The content in this blog post is provided for general informational purposes only and should not be considered professional tax or legal advice. The author is not a Certified Public Accountant, and no assurances can be made regarding the outcomes or consequences of tax returns, IRS actions, or any financial decisions based on this information. Readers are strongly advised to consult with a qualified tax professional or legal advisor for personalized guidance specific to their individual circumstances. The author expressly disclaims any liability for decisions made based on the information presented in this blog post.
