As a newly minted, self-employed small business owner, you are headed on an exciting adventure. You’re making business plans, trying to get your company off the ground, and incurring expenses and receipts as you do so.
If you’ve noticed your filing cabinet is overflowing with paper receipts, that’s actually a good sign. It means you’re keeping receipts, something that is especially important for tax purposes. If these receipts are for business expenses and you want to claim them as deductions when you file your tax return, they are considered business records and should be available at all times for inspection by the Internal Revenue Service (IRS).
Haven’t been saving your receipts? Be sure to start saving your receipts moving forward. For any previous receipts, contact your credit card issuers and processors, your bank, suppliers, and whoever else you might have conducted financial transactions with to obtain duplicate receipts.
You’ll also need the receipts to fulfill other formal business obligation, such as:
Below, we’ll provide you with everything you need to know about organizing your tax receipts, including quick ways to update your filing system so that everything is paperless.
Most of our daily activities are online nowadays, so why not add record keeping to the list? The good news is that the IRS accepts scanned or digital receipts when it comes to tax filing. There are just a few requirements to make sure that your digital filing system is in compliance:
The IRS defines an electronic storage system as “any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media.” Going by that definition, you may decide to purchase a scanner (available at any office supply store) and an external hard drive or a flash memory card to back up receipts you scan into your phone or computer. Or you may prefer to keep written records, which can easily be added to a spreadsheet to help with better organization. Whatever you decide, though, make sure you capture details from the entire receipt. This includes the date, address of the business, and the total purchase price.
Alternatively, you may use a receipt-tracking app to organize and save your receipts.
The ZenBusiness Money app is sure to become your one-stop-shop for all things finance. This free app syncs with your business bank account and enables you to:
ZenBusiness Money makes it easier than ever to manage your small business finances. With simple organization, a user-friendly dashboard, and the ability to create custom invoices and track them, you can effortlessly see who has paid and who hasn’t. Plus, you can use the app to automatically track tax deductible expenses so you’re better prepared at tax time. Get the app for free today.
One of the perks of working for yourself, aside from keeping your own hours, is being able to deduct business expenses. If you meet a client for a lunch meeting, you can deduct the amount as an expense come tax time. However, if you are presenting the IRS with only a receipt from a restaurant without any notes about the purpose of the meal, you can see why that could become a problem.
For every business expense you claim, you should be able to substantiate it with a combination of supporting documents. This doesn’t only refer to receipts and invoices, and you may be asked to provide other information, such as who attended the meeting and the purpose of the meeting.
This is why you should get in the habit of taking notes. You can add these notes directly to the receipt before taking a photo, scanning, or organizing receipts in a file folder. Just make sure you jot down enough information to recall what the expense was for months later.
Aside from the app listed above, you can use Microsoft Excel or Google Sheets to log your expense receipts and any notes you want to include. Information you might want to note could include:
While you’re getting in the habit of tracking your receipts and taking notes, why not categorize your receipts as well? Doing this will save you a lot of time come tax time. Below are different business expense categories you may come across as an independent contractor, consultant, or freelancer.
There’s a huge emphasis on receipts when it comes to taxes because it’s one of the few documents the IRS deems a viable supporting document. More specifically, these documents include sales slips, paid bills, invoices, store receipts, deposit slips, and canceled checks. Note that bank statements and credit card statements are not allowed, so be sure to keep this in mind when debating whether to throw out a receipt.
With these tips, you’ll approach the next tax season with more confidence and peace of mind, thanks to your digital records of carefully categorized business receipts. Clear and accurate receipts are the perfect antidote to the headaches of an audit. And remember, with the ZenBusiness Money app, you can keep track of your receipts and expenses all in one place so you’re better prepared come tax time.