If you are a small business owner, receipts are vital come tax time and you may be asking yourself what receipts should you save. And hopefully you have been organizing them on a daily basis all year, otherwise you are in for some headaches. But, if you are just getting started, or if you are reorganizing your receipts, you might be wondering just what receipts you need to keep.
The short answer? All of them. Plus supporting documentation when a receipt isn’t given. To help you better understand, let’s take a look at this in greater depth.
Not every transaction provides you with a receipt. When you are using such a transaction as reason for a tax deduction, you still need proof that this supposed expense exists. Some common supporting documents that prove a transaction occurred include:
It is tempting to just toss things that you don’t think directly relate to your business. For example, if you run your business from home, you might not think that your rent or electricity can be used as deductions—but they can, or at least the percentage used by your business can. Before you toss, really think about how it could relate to your business.
Okay, so we said you need to save all receipts relating to your business, including some that you might not have thought to save. But how do you organize the mess? The first thing you need to do is make a note on each receipt explaining how it was used for your business. If you are ever audited, you need to be ready to explain that the pens you wrote off as a business expense were used for your business and not for the kids’ school supplies.
Then, organize them by month and year. You can do this in a number of ways, from using binders to file folders to scanning them and organizing them in the cloud. But however you do it, understand that it must be done and you must keep up with it.