February 15th, 2008 at 6:52 pm
With the ongoing planning of my new business (which I’ll be officially launching mid this year), I am trying to explore the best way to organize future receipts incurred for tax purposes.
In my personal finances, we’ve always taken standard tax deductions and not itemized anything (didn’t really need to). Receipts and tax related stuff go into one folder that is labeled for the relevant year. When taxes are filed, I put them into a big envelope, with the labeled year and store it in my filling cabinet. I can’t do that with my business as there is itemization involved and a lot more receipts.
While researching the web, I’ve found a multitude of ways people organize their receipts for the IRS:
1) Scan the receipts into pdf form with a Fujitsu’s Scansnap scanner, store them under appropriate folders on the computer. Then burn a CD at the end of the year, label it “200x Tax Receipts” and store it in a fire proof safe.
2) Buy an accordion file (one with a minimum of 12 slots/ pocket), label each slot for the month of the year. Record each receipt in Quickbooks or Quicken and then store them within the relevant month. Label it “200x Tax Receipts” and keep in secure place after the year is over.
3) Use Shoeboxed to scan organize email/ real receipts digitally
4) Use Neat Receipts to scan and store your receipts digitally
5) Put receipts in big envelopes categorized with the appropriate labels e.g. Food, Entertainment, Business Equipment, Office Expenses, Travel, Advertising, Donations etc. At the end of the year or after taxes are filed, bundle them, label and store.
6) Use Diners, American Express or dedicated credit cards for all business expenses. They’ll send an itemized invoice at the end of the year. An accountant can then sort out the relevant deductible expenses.
7) Store in paper folders, boxes or shoeboxes; then transfer every year to bank box or safe.
8) Store in a big box categorized by type (and not date). Receipts are stored after it is recorded in Quickbooks or other financial software.
Item #6 doesn’t tell me much on how the receipts are stored or organized. I’ll probably cross that one off my list of options to consider.
Regarding what are the acceptable practices in the taxman’s eyes, I’ve read conflicting advice:
- scanned receipts are accepted but if audited, they can question its authenticity
- scanned receipts aren’t allowed
- rule of thumb for keeping receipts is about 3 years
- you must keep receipts for at least 5 years
- receipt under $75 can be thrown away (according to the IRS) but you’ll have to justify the amount if audited.
- receipts aren’t needed for anything below $10
- receipts aren’t needed for anything below $500
(Definitely will have to seek the advice of an accountant to get the real answer)
I’ll have to decide which is the best way to organize my tax receipts. Right now, until I get an official answer on whether IRS accepts scanned receipts, I’ll store the originals and won’t bother scanning them (as it could be a waste of time). I’m inclined to buying an accordion file folder, storing the receipts by month and using Quickbooks to record/ itemize (which I already have).
How do YOU organize your receipts for tax purposes and deductions?
5 Responses to “Organizing tax receipts”
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yoshi said: @ 10:45 pm
February 15th, 2008
Organize receipts? save them? what’s this all about? LOL
I never do. It’s a failing of mine.
Tom Gerber said: @ 12:04 am
February 17th, 2008
Paper Receipts fade over time…so
1.Enter deductible receipts into software such as Quicken,
Quickbooks, etc.
2.Put deductible receipts in an envelope until you accumulate 150 receipts,
3.Use GForce Digital Services paperless receipt service
for $49 to scan each unorganized receipt to a PDF,
digitally organize & backup to CD
4.Just copy each CD to the same folder on your computer
each time you use the service and your receipts stay
automatically organized for you!
5.Shred the paper receipts
6.Repeat as many times as necessary to get rid of all of
your deductible paper receipts -
** You can send any date receipt, with any service, and
no organization is required - includes FREE shipping.
www.GForceDigital.com
Dan Englander said: @ 1:37 pm
February 20th, 2008
I love this entry, because you know what? You can spend time and money organizing receipts yourself, but it’s such an unappetizing task for so many people, that most receipts fall into total disorganization. This is not good. And Shoeboxed is here to help.
Whether you need your receipts for taxes, reimbursements, donations, insurance claims, or for simple budgeting, Shoeboxed can help you get them under control easier and more cheaply than any other service out there.
But to actually answer your question about taxes, the IRS does in fact accept digital receipts. There are a couple of small exceptions with regard to business receipts (i.e. an employee can’t write off a hotel receipt that isn’t itemized), but generally you’ll be fine relying on your digital copies. Shoeboxed also mails back any paper receipts you send us, so you’ll have the backup as well if you need it.
We’ve made it our life’s work to eliminate the stranglehold receipts have on your productivity, including your tax filings. If this means scanning in your receipts for you, we’ll do it. If this means getting rid of paper receipts altogether… well, rest assured; we’re working on it.
Thanks!
Dan Englander
Tom Gerber said: @ 6:54 pm
February 22nd, 2008
I agree with Dan this is a great entry. Paper receipts have been a problem for many years. Some reasons are: they come in many different sizes, including regular-page sizes, they fade, tear, get lost, and are hard to index and store.
Why keep receipts at all? Receipts are required by the IRS as support for tax deductions. The IRS requires you provide proof you “incurred the cost” for each deduction taken. This usually requires keeping your credit card receipts, invoices, etc.
To add to what Dan mentioned regarding taxes, the IRS does in fact accept digital receipts, but there are important requirements, other than deductibility, that must be met. They are outlined in IRS Bulletin 1997-13 on Pages 9-10.
Some highlights are: (1) digital records must maintain a high degree of legibility, (2) the taxpayer must retain digital records as long as needed to provide proof of a deduction, (3) digital records must be stored on a media that prevents alteration or if altered provides an audit trail, (4) digital records must be able to be indexed to your books and records, (for many your checkbook), and (5) the taxpayer must aways keep the indexing system used.
To provide solutions to the points referenced above, we use PDFs and CD-ROMS. The IRS also uses PDFs and CD-ROMS. See the FAQs section of our website to learn more.
In summary we have been working on our paperless system since 1991. Our service is competitively priced and is pay-as-you-go. We guarantee results in writing or your money back. We do the organizing and scanning, return your paper receipts, provide your digital receipts on CDs which make great offsite backups, and provide you with an easy-to-use “paperless system” to store thousands of organized digital receipts on your computer which are just a mouse click away.
We would enjoy helping you. We are GForce Digital Services.
Thanks and remember to go paperless!
Tom Gerber
The Foo said: @ 4:15 pm
February 26th, 2008
@Dan Englander & @Tom Gerber
Thanks for the info guys. Still contemplating what the best option is, will keep your products in mind.
@Dan Englander
Shoebox is a good idea but has some limitations which I experienced which is stopping me from using it. I emailed one of your support staff about it — basically it is the inability to edit dates of receipts, the inconvenient tab system (to see the actual receipt) and tagging (for search). The email receipt algorithms also don’t read well — i guess it’s still a work in progress.