8 Simple Practices For Small Businesses To Organize Receipts Efficiently

Keeping a record of your business transactions is considered a top priority for a self-employed or small business owner. Keeping your records properly saves you from being audited by the IRS. Plus, staying organized will save you time during tax season. 

However, we understand that keeping track of all your receipts and records can be tedious and time-consuming. That’s why in this article, we’ve outlined eight best practices to help you organize receipts and records efficiently. 

1. Use a business account and credit card instead of cash

As the IRS will continue to enforce its audit rules, keeping a better set of bookkeeping and receipts for all of your expenses will help you save time and hustle. This simple yet important tip can help you cope with it. Avoid using cash — it’s easy to spend, hard to track, and nearly impossible to match up cash spent with receipts. 

On the other hand, a credit card or debit card will provide you with monthly statements, enabling you to cross-check details with your paper receipts. It’s also a good idea to have a separate business account and credit card, so you don’t mix business expenses with your personal spending. 

2. Save your receipts

Don’t just rely on bank statements, credit card statements, or canceled checks! The IRS won’t accept your bank or credit card statements to justify deductible expenses. You will need an itemized receipt that corresponds with the transaction. 

Hang on those itemized receipts, which are also called “source documents,” for at least six years after your last Notice of Assessment since the IRS will ask to see them in the event of an audit. You can keep a physical or digital version of receipts. 

3. Choose email receipts instead of paper receipts

Nowadays, many merchants offer this service to their customers. You can choose to receive your receipts via emails, label and categorize them in a specific order. Email receipts are convenient and friendly to the environment as they go straight to your inbox and clear your desk and drawers from piles of paper receipts. You can always find them easily, create expense reports, and do so much more. 

4. Review your receipts once a month

Spending some time reviewing, categorizing, and organizing receipts for 30 minutes every month can make a huge difference! It keeps things manageable as the year progresses and helps you keep track of your spending so that you won’t miss out on any tax deductions. 

You can purchase an accordion folder every year to store all business receipts and make sure each folder contains all receipts for the year. These folders are inexpensive and easy to obtain. They allow you to organize receipts by category and year, making it easier than ever to find any receipt even years later. 

5. Make notes on the back of receipts

This is an especially great idea to keep track of dining and entertainment expenses. It’s easy to recall why you bought a printer, but it can be difficult to suddenly remember who you went to dinner with and what the business purpose was in 2015. By starting this simple habit, you will rest assured that you will not miss any dining and entertainment expense deductions for business purposes.

6. Create a spreadsheet for work-from-home expenses

Whether you have always been working from home, or you are working remotely due to the Covid-19 pandemic, there will always be some noticeably deductible business expenses. These expenses include a portion of cleaning materials, utilities, home insurances, office supplies, along with part of your property taxes, mortgage interest, and capital cost allowance.

To claim these expenses, you need to calculate the percentage of your home used for business and apply that percentage to the tax deduction. Create a spreadsheet including your receipts for home office expenses throughout the year. By making it a habit to update the spreadsheet once a month, you’ll save yourself the headache of scrambling to input and tally up all your work-from-home expenses at the end of the tax year.

7. Back up your receipts

Since paper receipts tend to fade with time, keeping a digital copy of each receipt can save you from getting in trouble with the IRS. The simplest practice is to snap a picture of each receipt on your phone, then upload it to a central location later and keep it for at least six years. The IRS allows digitally stored receipts, however, don’t forget to back up stored receipts (on the cloud or a memory device) in case your hard drive crashes and deletes all your important information by accident. 

8. Scan and store your receipts digitally

Storing receipts digitally has been proven to improve business efficiency. It provides several benefits including time and cost-saving, easy to store and access, tax-ready, reduces clutter,  lessens the risk of data loss, increases security, and so much more. 

There are plenty of receipt scanning apps that you can use to scan and store your receipt digitally. Each offers special features for particular purposes, so anyone can choose the most suitable one and benefit from it. 

Shoeboxed is a painless receipt scanning and organizing solution for freelancers and small businesses owners. This versatile app serves many purposes: scan, store and organize receipts, manage business expenses, store business cards and even track mileage for business travelers. 

Shoeboxed’s OCR engine and human data verification features ensure that your receipts are legibly scanned, clearly categorized, and accepted by both the Internal Revenue Service and the Canada Revenue Service in the event of an audit. What’s more, Shoeboxed enables you to create clear and comprehensive expense reports that include images of your receipts. You can then export, share or print all of the information you need for easy tax preparation or reimbursement… within a few clicks. 

Shoeboxed is now available on iOS and Android. Get your free trial before choosing the perfect plan

Conclusion

Organizing your receipts can keep you proactive and productive, which saves you lots of time, stress, and even money in the long run. Going digital helps you organize receipts and keep track of your expenses easier than ever. As everything is digitally stored and accessible through a cloud-based system, you will be able to work with them anytime, from anywhere, with any device, within a few clicks. 

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5 Receipts Small Business Owners Should Take Extra Care to Keep

Holding on to detailed receipts for expenses is one of your best defenses in an audit. Receipts also act as a log, allowing you to jot down important context about your (sometimes costly) expenses. Of course, not all receipts are created equal, so we’ve compiled a list of five, highly scrutinized receipts for which you’ll want to keep receipts.

Holding on to detailed receipts for expenses is one of your best defenses in an audit. Receipts also act as a log, allowing you to jot down important context about your (sometimes costly) expenses.

Of course, not all receipts are created equal, so we’ve compiled a list of five, highly scrutinized receipts you’ll want to keep.

1. Meal & Entertainment Receipts

Winning clients and building relationships are two of the many reasons we like to break bread with business contacts. Unfortunately, the line between “contacts” and friends is often blurred, making this an expense the IRS likes to scrutinize. For that reason, it’s best practice to keep receipts handy and properly documented in case of an audit. This includes recording information about who attended the meal and the purpose.

Shoeboxed Pro Tip: You can record this information using Shoeboxed in the “Notes” field for each receipt. When you submit an expense, simply include the initials of everyone who attended and a quick description of meeting purpose in the Notes section. Or if you use Magic Envelopes, you can jot down the information on the receipt and then add the information in the Notes field once the receipt has been processed. Simple as that.

Add a note to a Shoeboxed receipt by clicking on the Notes field in the receipt details
In the Shoeboxed web app, you can add receipt information like client name or meeting purpose under the “notes” section. Better documentation of Meals and Entertainment receipts will protect you from audits and verify that the expense is indeed deductible.

 

2. Receipts from Out of Town Business Travels

Out of town business travel generates tons of receipts from airline tickets, taxis, meals, laundry, lodging and more. Of course, business travel can also be mistaken for “pleasure”, making this another IRS favorite prone to audit scrutiny. Receipts verify what was purchased on the trip and also act as a travel log of where time on the business trip was spent. Some important factors that determine eligibility include: how much of the trip was personal in nature, if the trip was away from your tax home and if the amounts are justifiable.

Shoeboxed Pro Trip: When traveling, make it habit to submit receipts as you make the purchase — don’t wait until the end of your trip to document your paper trail. Using the Shoeboxed Receipt and Mileage Tracker app can help you achieve this, and it can also eliminate the possibility of losing a receipt. You wouldn’t want to lose reimbursement or deduction money because of a misplaced piece of paper!

Use Shoeboxed to track receipts on-the-go as you travel on business trips, like Uber ride receipts
1. Receipts verify business expenses used on business-related trips & keep a time log of your travel activities.

Use Shoeboxed to track receipts on-the-go as you travel on business trips, like Hotel stay receipts
2. Keeping track of receipts as you buy when traveling eliminates the risk of losing proof of purchase.

Use Shoeboxed to track receipts on-the-go as you travel on business trips, and then create expense reports to keep the deductible expenses organized
3. At the end of your trip, organize deductible receipts by creating expense reports right from your phone.

 

 

 

 

 

 

 

3. Vehicle Related Receipts

“Mixed use” assets, like a vehicle used for both personal and business purposes, require extra care to distinguish when they are being used for business and when they are not. Since only the portion of use that is for business should be counted in the company’s books, keeping clear and detailed records of when, where and why a vehicle is used for business purposes helps to establish what portion of use is business related.

The portion of use that is business related (e.g. 20% of use is for business) can then be applied against any vehicle related expenses (maintenance, parts etc). Always keep a detailed receipt (as opposed to a credit card statement) that lists what items or services the vehicle needs.  Remember, if an auditor can’t easily establish that a payment to Costco was for car tires and not for Tide, chances are that vehicle-related expense won’t be considered for business purposes.

Shoeboxed Pro Tip: Use the Shoeboxed Receipt and Mileage Tracker App to automatically track mileage using your phone’s built-in GPS when traveling to and from business meetings. Not only will the app record the precise start and end points of your trip for detailed documentation, but it will also apply the standard mileage rate.

Use Shoeboxed mileage tracking to keep accurate records of business expenses related to vehicle use
1. Drop a pin whenever you want to start, pause or end a trip to make sure you are maximizing deductible mileage rates.

Use Shoeboxed mileage tracking to keep accurate records of business expenses related to vehicle use
2. Adding a trip name and a note to distinguish the business-related nature of the trip will ensure it is deduction-friendly.

Use Shoeboxed mileage tracking to keep accurate records of business expenses related to vehicle use
3. Shoeboxed Mileage tracking syncs with your phone’s built-in GPS for accurate documentation of vehicle trips.

 

 

 

 

 

 

 

 

4. Receipts for Gifts

Gifts are a thoughtful way to build rapport, however, there are several nuances to be aware of. For example, deciphering whether concert or sporting event tickets are considered ‘gifts’ or ‘entertainment’ depends on whether or not the gift giver goes with their client or business prospect. Documenting this kind of information on the gift receipt is key to allowing your accountant to treat the expense correctly for tax purposes. For more detailed information on gift expense limits and interpretation, check out this publication.

Shoeboxed Pro Tip: If you want to keep better track of gift receipts, add a “Gift” category and assign that category to receipts that would be considered gifts for deduction purposes. You can also add information which can validate whether or not the receipt can be considered a gift in the “Notes” field under receipt details.

Manage receipts with Shoeboxed by using customized categories to organize expenses,
Add a “Gift” category and assign them to expenses that could be deducted as gifts. Organizing receipts by category can also help you and your accountant treat the expense correctly for tax purposes.

 

5. Home Office Receipts

Like vehicles, a home office is considered “mixed-use” and the expenses associated with claiming a home office are therefore closely scrutinized. The key to properly accounting for home office expenses is to establish what portion of the home and the home’s expenses the office represents. If the home office makes up 20% of the home’s space, for example, then this proportion of expenses is deemed common to both the home and home office such as rent, electricity, internet to name a few. Keeping the bills and proof of payment for the home expenses with the business’ files is important in case these home office related expenses are challenged. Be sure to read the IRS publication on home office expenses for more information on what shared use items do or don’t qualify.

Shoeboxed Pro Tip: Documents other than receipts (like bills and invoices that prove home office expenses) can also be used to protect your business in case of an audit. Luckily, you can upload a variety of documents to Shoeboxed — we don’t just scan receipts!

Shoeboxed can organize a variety of documents like bills, invoices and contracts to verify expenses, not just receipts
Home office deductions can get tricky because shared space with the “home” complicates the use of business expenses. Documents other than receipts (like bills and invoices that prove home office expenses) can be used to protect your business in case of an audit when receipts alone cannot distinguish home vs. office use.

An original version of this article was first published on the Shoeboxed Blog in November 2013 and was written by Ian Crosby, the CEO of Bench.co, an online accounting firm. This version has been altered to reflect IRS updates and new Shoeboxed features.