One of the questions I get asked the most: do I need to keep receipts? Along with one of my most common answers: it depends.
Remember, even if you have a receipt, it does not mean that the expense is deductible. Only business expenses that are ‘ordinary, necessary, and reasonable in amount’ are deductible.
What are the most common expenses denied by the IRS? Meals and travel. Not because of a lack of receipt, but because the business owner could not prove it was for business.
It used to be that entertainment was the most questioned expense but now it is just flat out not deductible. Did you know that? Nope, you cannot deduct those sports game tickets or spa days with clients anymore.
How to prove it was for business? You need to document:
Amount of the expense
Date and place - receipts will typically have this information but I also like to document meetings, expenses, travel in my google calendar and my hand-written planner. Remember - there’s no such thing as too much documentation.
Business purpose - this is SOOOO important. Was that enough O’s to get your attention? Write on every receipt the business purpose. Some common examples: client meeting, prospect meeting, networking, marketing, encourage existing business relationships, team meeting, training, team morale, team bonding. Also document whether the business meeting was before, during, or after a meal.
Business relationship: show the business relationship by listing names, occupation, and any needed to establish a business relationship.
The IRS does not require that you keep receipts, canceled checks, credit card slips, or any other supporting documents for expenses less than $75. Although you don’t need the actual receipt, you have to still document the date, place, amount, business purpose, and business relationship... so may as well keep the receipts. Again, you can never have too much documentation.
When to document? Right away. Trust me, you don’t want to be the person in February trying to figure out all of this info from the year before, or worse, years later if you get audited. For me, it works best to write it all down as soon as I get the receipt. Otherwise I’ll forget.
Now where to keep all of these receipts?
Expensify is a great app. You take a picture, it smart-scans the receipt, and then you can add a category. It also will track mileage and time tracking.
There is an app called shoebox as well but I’ve never used it.
Neat is great for big companies and has a physical scanning system as well.
Quickbooks also has a tracking system.
What system do you use?