A Simple System to Keep Your Receipts Organized.
When I first started providing tax and accounting services 25 years ago, my new clients would ask:
1. What expenses are deductible for my business.
2. What receipts should I keep, and
3. What is a simple method to keep my receipts organized.
Question #1 and #2 will be addressed in another post. Today, I will address #3, keeping receipts neat, tidy and organized.
My clients knew they had to keep all the receipts if they wanted to deduct business expenses on an income tax return. So, many stuffed business receipts into a drawer of a desk, in the glove box of a car, at the bottom of a purse or briefcase. But that’s as far as it got. Then when it came time to do the bookkeeping or tax return preparation they bitterly discovered that having a disorganized mass of receipts was almost as much of a headache as having no receipts at all.
Over the years I developed simple filing system for my clients, one in which they could easily organize and summarize business receipts for data entry into an accounting program (or excel spreadsheet), or for tax time. It also makes it easy to retrieve a particular receipt with some hope of success if necessary.
First, I suggest that you purchase a small “travel” plastic folder (checkbook size) with a flap from an office supply store. It should be small enough to be carried in a purse or a briefcase. This will be the intial storage place for all business receipts, and when out and about or traveling. Stuff all your business receipts in this folder (receipts for personal purchases should be kept separate). If you use an appointment book or a Daytimer, put the receipts in the side pocket. The important point is that you find a safe place to put receipts when away from home , and consistently use the system to keep your receipts in one place.
Second, the home-based system should consist of 12 manila or file folders for the months of each year. When home, remove the receipts from the “travel” folder , separate the receipts by month into two groups, “Cash” and “Debit/Credit” cards. Clip each group together and file in the appropriate month’s file folder. Then, when it’s time for your monthly bookkeeping or tax return preparation, you can present 12 folders to your accountant, all organized, neat and tidy!
When your accountant returns the receipts to you, file them in a safe storage place. Business-related expenses should be kept for six years, so it is important to have them available if necessary.
Tax Tip: Although the IRS does not require you keep receipts for business expenses over $75, you would still be required to prove the deduction through other means, such as logs, contacts, calendars, etc. It’s a good idea to keep ALL receipts in the event of an audit.