All businesses incur expenses regularly. These can come in many different forms. There are office supplies, lunches out with clients, transportation, monthly expenses to run the business i.e. website fees, phone/internet bill, utilities etc. Most business expenses are deducted from the income of the business therefore lowering the amount of taxes paid. These expenses can only be deducted with proper documentation in the form of a receipt. IMPORTANT: The IRS requires receipts to verify purchases. Credit card and bank statements do not qualify as receipts. For example, a business might have a $200 purchase on the company credit card to Staples. Without the receipt there is no proof that this was only for office supplies.
So, now you might be thinking, there is already a lot to keep up with in my business and managing receipts is another tedious task to pay attention to regularly. While this is true, receipt organization can be easier than you may think. Today I will give you some tips on how to best organize receipts to keep your accountant happy and take advantage of a valuable tax break for your business.
First, I would advise you to keep all receipts together. Each day place all receipts in the same place. This can be a jar, a folder, or whatever you have to collect things in. Make sure you are aware of where receipts can be found. Check in shoe boxes, filing cabinets, folders, your wallet, and car, email, on your phone.
Then, at the end of each month, while you are reconciling your business account, input your expenses into a spreadsheet or accounting software. These expenses should be categorized as specifically as possible. This task serves you best if completed monthly.
This can be done manually or you can speed up the process using digital receipt management tools. There are a few methods out there to help keep things orderly and easy to analyze.
Shoeboxed This app has many helpful features. It can archive and organize receipts, track mileage, even automatically archive receipts from Gmail. They also have prepaid envelopes you can stuff with actual paper clutter, mail it to them and Shoeboxed will digitally organize that data as well. These are just a few of the helpful features of this app. Cost: Basic is $9.95/month, $100/year.
OneReceipt This app seems to be a simplified version of Shoeboxed. This also gives the option of linking to an email and will extract and categorize the information found on the receipts. They also provide a monthly report of the receipts and you can keep up with whether or not you are on budget. Cost:Free
www.itemize.com Like OneReceipt, this app can get e-receipts from your email account. It automatically extracts data and can instantly create expense claim forms. Cost:$8.99/mo
Excel/Google Spreadsheets If you prefer a more manual approach to receipt organization, this method is for you. Simply set up a spreadsheet of the expense categories you are able to deduct and input the receipt information on a regular basis. Keep in mind, unlike the above mentioned apps, you will need to keep the physical backups of the receipts. This again, is your proof to the IRS that each deduction is legitimate. Cost: Free
Pen and Paper: For those of you who want to do it old school-style, this method is not nearly as automated or efficient come April 15, but it works for thousands of people!
You can do this in a number of ways, including:
Buy a spiral notebook. Tape receipts into the notebook, one per page, and scribble any additional information onto the page.
Copy your receipts with a copy machine so that you get a clean, unwrinkled 8.5x11” sheet, and then store it in a filing cabinet with appropriate labels.
If you don’t have many receipts, just take a basket, put it in your office, and throw receipts into it. While this is not a very elegant method, having one easily-accessible place where you put all your receipts can serve as a reminder to hang on to them in the first place. You will have to sort through them at the end of the year.
Cost: $2 for a notebook, miscellaneous expenses for copy paper and ink.
Either route you go, the most important thing is to keep your receipts organized to make audits and record keeping as simple and accurate as possible.