As a small business owner, you know that you need to keep track of your business’s financial documents for tax purposes. Those documents include business receipts, bank statements, purchase history, credit card statements, online banking records, and a lot more.
However, staying on top of those documents isn’t as easy as a walk in the park. Which business receipts should you keep? And for how long? And in what form? This article will answer all these burning questions.
Which receipts do small business owners need to keep?
According to the IRS, keeping good records will help you monitor the progress of your business, prepare your financial statements, and identify sources of income. From that, you can keep track of deductible expenses and prepare your tax returns easier.
On the other hand, the IRS doesn’t explicitly mention the possibility of being in trouble if you don’t keep the right documents. When it comes to keeping receipts for tax preparation, it’s a good idea to be “better safe than sorry” and keep all documents related to your business. It’s even better to consult with a professional accountant about this. However, as a starting point, here are a few types of business receipts that you should absolutely keep:
Did you buy inventories to sell to your customers? Or did you sell things made from raw materials? If so, you should definitely hang on to documents that identify the payee, the amount, and proof of payment for the items. Try to get a receipt for all these purchases. However, if you can’t get a receipt, keep the invoice and canceled check (proof that the check has been paid.)
The term “business assets” refers to the property you own and use in your business. Furniture, computers, vehicles, or machinery are typical examples of assets. If you’ve ever tried to file assets for taxes on your own, you know that you’ll have to deal with a complicated thing like “depreciation.”
To make tracking depreciation easier, you should keep track of when, where, and how much money you’ve spent on your business assets. For example, you can keep receipts of when you purchase your company’s computers. You’ll also want to keep records of when you sell one of your assets.
Other business-related expenses
Most of your business receipts will likely fall into this category. Though every business is different, here are the most common examples of business-related expenses:
- Advertising: Advertising expenses include designing and purchasing business cards, online and offline advertising, billboards, web hosting, etc.
- Vehicle expenses: Vehicle expenses such as gas and maintenance fees are tax-deductible, so don’t throw away those receipts!
- Education expenses: This expense applies when you hire a professional or an education service to train yourself or your employee. Don’t forget to keep your invoice or receipt and your bank records to prove that you paid for the education expenses.
- Professional services: This expense applies when you hire a lawyer, accountant, bookkeeper, or graphic designer to work for a certain period of time. You will need to keep the invoice and the receipt when you pay the bill.
- Entertainment: Entertainment expenses such as taking clients out for lunch can be tax-deductible, but you need to pay close attention. You have to keep both the receipt and records showing that your activities were directly business-related (e.g., an email invitation for a business lunch.)
- Networking: If you attend a networking event or conference, you’ll need to keep your receipts, bills, and bank records as proof of purchase.
- Office supplies: Extra office expenses, such as printers, staples, paperclips, scanners, etc., are tax-deductible. So don’t forget to take the receipts every time you visit office supply stores!
- Travel expenses: During your work, you may need to visit a client or attend a conference in another state. Though the IRS requires specific qualifications for deductible travel expenses, you can keep certain receipts or bills of your travel expenses to deduct all or part of a trip. You can check out our article on how to manage your business travel expenses effectively.
How long should you keep business receipts?
In general, you should keep business receipts for three years (from the date you file your tax return). In some special circumstances where fraud or severe tax underpayment is suspected, the IRS might require you to keep your receipts for up to six years. For example, if you underpaid your taxes by more than 25 percent, you will need to keep those records on hand.
How Shoeboxed can help you digitally store your business receipts
Years’ worth of business receipts can result in piles of papers. Fortunately, no one says that you have to keep all your business receipts in their original paper form. So, what’s the best alternative to save all your documents for any potential IRS audit?
The answer is to digitize them. As the IRS accepts digital receipts, you don’t need to store physical copies of your bank statements, purchase history, or credit card statements. Today, there are many receipt scanning apps that help you digitize paper receipts and save them for years.
Shoeboxed is an all-in-one receipt management app for small business owners and freelance accountants. With an OCR (Optical Character Recognition) engine and human-verified feature, Shoeboxed ensures that your business receipts are precisely scanned, clearly located, and easy to track. You can then create clear and comprehensive expense reports that include images of your receipts, export, share or print all the information you need for easy tax preparation or reimbursement… within a few clicks.
Moreover, Shoeboxed‘s mileage tracking and business card storing features make it a one-touch app to store and access all your business’s important information.
Sign up and go paperless with Shoeboxed today!