Six Record Keeping Steps for Tax Time

I’ll share how to keep business and personal receipts organized for easy retrieval or for tax and audit purposes. I’m talking about those tiny paper receipts we all receive from stores, restaurants and gas stations. You know the ones that are so tiny they sometimes get lost. They also fade with time and please don’t spill anything on them or they could disappear all together.

First, I’ll explain why it’s a good idea to keep your receipts. Then I’ll explain how to keep them organized and handy. Here goes:

Why Keep Business Receipts? Because it could cost you dearly if your expenses are disallowed for lack of proper documentation.

If expenses are disallowed you are going to pay higher taxes because it will increase your profits. If you are involved in an audit and don’t have proof for your expenses you could be looking at increase profits, penalties and interest. Reason being that what you thought were expenses and were reducing profits are now increasing your profits. Now, if you didn’t pay enough in taxes to cover the extra profits you will probably be looking at penalties too. And if those penalties go back a year or two now you have interest to pay too.  Hey, I don’t mean to scare you here but I think you get the picture.

So it’s pretty important to keep receipts.

Why Keep Receipts For Personal Reasons? Here are some pretty obvious reasons:

  • For returns & rebates – If you need to return something you purchased at the store
  • For reimbursements – To get reimbursed from an employer for an expense
  • For tax purposes – To substantiate items listed on your tax return

I’m sure you have more reasons to keep receipts than I do, so let’s get on with how to store them.

How to Keep Receipts Organized

The major goal here is to have 1) receipts that match your actions and that they are 2) well documented and 3) cross-referenced.

1) Be sure the receipt is properly documented

Let’s say you go to lunch with a business client on April 12th and you spent $57.00 and you discussed an upcoming promotion.  The receipt needs to have the who, what, where, when and why and if it doesn’t you can add it to the receipt by actually writing on it.

Who – you had lunch with
What – you paid for
Where – you had lunch
When – you had lunch
Why – you met with the client

This may seem like a lot but the receipt should already have most of this information. You just need to fill in the rest like the who and the why. Try to get in the habit of recording these details at the end of the meeting.

2) Store your receipts by month

Receipts are so small they need some kind of container. I like to store them in paper envelopes. You can write each month on 12 envelopes and place them in a folder for the tax year. In our example above our receipt is well documented so we can just file it in the April envelope. This sounds simple and it is.

I see there are many receipt scanners on the market. I also see apps that allow you to take pictures with your smartphone. These apps will then categorize your receipts. I have not used any of these apps but it sounds like a lot more work then is necessary.  Why not just file the receipt away and categorize the receipt in your bookkeeping system when you get the credit card statement. I think we all can figure out that restaurant receipts go under the expense category of “meals & entertainment”.  I’m all for saving time and I love short cuts but I think it would be a waste of my time to have to take pictures or scan each receipt.

I would love to hear from anyone using a receipt app or receipt scanner. Let me know how you like using them, if you feel they save you time and what type of volume you deal with on a monthly basis.

3) Cross reference your receipts to your calendar and print a copy to store in your monthly envelope.

I love to cross-reference. It just makes things so clear.  Here’s what you can do to make sure your records are clear.  If you use a calendar like Google calendar you can print the month of April on one page. Find the entry on April 12th and write an “A” in a circle to place in the April 12th box. Then write an “A” in a circle on the restaurant receipt for April 12th. Now just file away your calendar and you are done!  This makes your records super clear to anyone that may look at them later.  Let’s hope that “anyone” is not an auditor but if it is you will be prepared!

An insider tip

I’ve been the bookkeeper for many companies and only once was I involved in an audit. The auditor wanted to see proof of certain expenses.  Many were at random like every 12th check written but they also wanted proof of any large expenditures. I don’t know if that is their current procedure but that is what I experienced long ago.

In any case it is best to establish a procedure of keeping receipts organized and filed away with each year’s tax return in case of an audit. Who wants to pay more taxes than they have to?  Not me!

I hope I have inspired you to start organizing your receipts today.