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 [1] Shoeboxed to scan organize email/ real receipts digitally

4) Use [2] 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 [3] 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?