Even if you know very little about the specifics of tax deductions, you’re likely familiar with the idea of deducting business expenses. To accurately track your spending on business-related purchases, you should make an effort to organize receipts and store your receipts associated with those transactions.
The reason for this is twofold: first, maintaining accurate, complete records with the appropriate receipts helps you file your taxes correctly the first time, avoiding an audit. Secondly, if you do end up being audited, your records will be on hand and easily navigable, allowing you to justify the amounts you claimed.
If you’re a small business owner or independent contractor, all those receipts and invoices can pile up on your desk quickly. Without a system in place for organizing receipts, that messy stack is going to continue to grow and grow until it becomes a huge task.
Here, we’ll talk about how to organize receipts for taxes so that you can easily discern what the expense was for, when it was paid, and any other necessary details. The best way to organize receipts may be different for you depending on your needs, so we’ll discuss a couple of options. We’ll also cover what your records need to include to meet the IRS’ standards and get your best deduction. You’ll learn how to file receipts for taxes with ease.
Commitment is Key to Saving Receipts!
Regardless of the specifics of your particular method, the key to successfully organizing receipts is to check in with your records regularly. This means setting aside time every two weeks, every month -- whatever works for you -- and organizing your receipts for that period.
By keeping up with your records throughout the year, you save yourself the struggle of sitting down to do your taxes at the end of the year with a stack of receipts for transactions you can’t remember. You’ll also create lasting documentation that you can refer back to easily.
What to Include In Your Expense Records?
Depending on the type of business you work in, you may be eligible for a variety of deductions for expenses you may not even think about documenting. These may include:
- Home and office related expenses, like utility bills (electricity, gas, water, etc.) and the bills from home repairs. This also includes internet and phone bills, as well as the cost of maintenance and any renovations.
- Vehicle expenses and business mileage. In addition to your business and personal mileage, you should also be tracking fuel costs, repair and maintenance bills, receipts related to licensing and registration, tire costs, and lease or rental statements.
- Education costs, including tuition, associated fees, textbooks, and other necessary supplies.
- Child care expenses, such as pay stubs reflecting payments via a reimbursement account at work or receipts for child care while you were doing charitable work.
- Medical expenses, such as health insurance premiums paid for you and your family, as well as any out-of-pocket costs.
- Other assorted expenses, such as moving costs, charitable donations, investment and tax planning expenses, the cost of work uniforms (including laundry or dry cleaning of those uniforms and other work-only attire), and business supplies.
Ensure all your deductions are accounted for by saving receipts for taxes in the correct place. By checking in regularly, you’ll keep your workload manageable and prevent yourself from getting overwhelmed at tax time. You’ll also have the opportunity to take notes about a particular transaction while it is still fresh in your mind.
What are the IRS Requirements for Saving Receipts?
The IRS recommends that you keep your financial records for at least four years after filing. That said, we should gently remind you that you can be audited for up to 6 years after filing if the IRS suspects a discrepancy of 25% of your income or more, so report accurately and keep those records -- it’s better to be safe than sorry.
How to Organize Receipts: Physical Records
While it isn’t the most efficient system in terms of space, a physical tax receipt organizer is helpful to some people. We recommend categorizing your expenses first according to category (we like color coding for this), such as automotive, medical, business, etc.
Then, place all receipts for your monthly expenses in subfolders within the appropriate category. If you’re looking for a physical method of how to store receipts for taxes, this method makes keeping physical records as simple as possible while allowing for easy access to your paper receipts. You can store receipts in plastic accordion files (our tax receipt organizer of choice), one for every year.
However, this method isn’t a foolproof way to organize receipts. If you conduct a lot of business electronically, printing your financial records of each transaction may not be feasible. In this case, the best way to organize receipts may be electronically
How to Organize Receipts: Electronically
Our favorite method to store and organize receipts for taxes, electronic records allow you to easily move your files around and make for quick access at your fingertips, wherever you are.
You can certainly scan and file your receipts, but we like the convenience of snapping a picture on our phone or tablet and filing the image accordingly. You have the option of setting up a storage system on your own, or using an app like Everlance.
The benefits of using an app like Everlance are numerous: the program allows you to automate your mileage and expense tracking and lets you track any expense at a moment’s notice. Simply photograph your receipts within the app, and the program will allow you to categorize it accordingly and make any appropriate notes.
Apps like Everlance also allow you to store receipts securely for years, both on your device and through an encrypted cloud backup. The app will organize and store receipts and tally your expenses, taking the guesswork out of calculating your deductions.
Final Tip on Saving Receipts for Taxes
There are many methods for how to store and organize receipts for taxes, both physical and electronic. We find that, in today’s digital age, electronic record keeping allows you to organize and store receipts for your business expenses (and income, for that matter), making tax filing simpler and more straightforward.
Finding the best way to organize your receipts electronically may take some guesswork on your own, but a fully customizable app like Everlance makes filing and storing receipts for taxes easy and intuitive.