We recently had a client ask us why we need so much paperwork. Yes, we want you to keep receipts. In fact, all your business receipts. And we need copies of your insurance policies, paid invoices, statements, just about all the paper you accumulate in the course of doing business.
Is it because we love paper? Heck no. But we understand its value. We’ve seen enough that we know receipts and other documentation are a necessary evil, more necessary than they are evil. Here’s why you need to get good at tracking and filing papers.
Your business expenses are a critical part of calculating your costs, your profitability, and your tax burden. They’re also your only line of defense if you’re audited by the IRS, the Department of Revenue, or Workers Comp. You might think that bank and credit card statements would provide enough proof of your business activity. But no official agency will accept them.
It’s pretty obvious why they won’t. They need to have proof that the $83.00 you spent at Walmart or on Amazon was actually for office supplies and not for kids’ toys or makeup. And they’ll go over every expense with a fine-toothed comb. We are currently overseeing a federal IRS audit and we’re shipping box upon box of receipts, deposit slips, customer invoices, and more to the auditor’s office for examination. The auditor will look at everything. If the backup documentation is not in the box, the auditor will disallow the expense, recalculate the tax due and send you a bill for the tax – plus penalty and interest.
This is why we ask you for every piece of backup for every dollar spent and every dollar earned. We preserve the backup electronically and have that available in the event there is an audit.
Yes, keeping receipts and keeping track of them is a pain. Here are some tips to help you get better at it.
First, keep everything. It helps to keep expenses filed by category: office supplies, utilities, client entertainment, etc. Organize the categories by vendor and date to make them easier to locate. If you’re rolling your eyes at the thought of spending your precious time filing, consider this: a good filing system takes just seconds of your time to keep up. Finding a receipt that’s been shoved into a folder at random can take an hour. Design a system you can keep up and file every day so the task doesn’t become overwhelming. You’ll thank yourself at tax time and if you’re ever audited.
Second, make notes on your receipts to help remind you what business purpose they served. It’s especially important for entertainment expenses. It takes just a minute to note who you dined with and why. Again, your future self will thank you for being organized; it will be impossible to remember what happened at a meeting a year or two later.
You can choose to be paper-free by using technology. In fact, we recommend it. You can ask for email receipts when offered – they’re digital and easy to track. Second, you can invest in a receipt scanner. The systems are easy to use (some even work from pics you snap on your phone), and they’ll integrate into your QuickBooks or other accounting systems. They’ll also ensure that your receipts are clearly readable and preserved for the six or seven years you should retain them. (We hate that disappearing ink and cheap paper too.) An even easier solution is from a mobile app. You can snap a picture and document everything at the restaurant table! One we like is HubDoc.
Most tracking systems are very affordable – less than $25 a month, and scanners will cost less than $200 on Amazon or office supply sites. Oh, and be sure to keep your receipt for that too – it’s a business expense!
About The author
Andrea Bone is the Founder & CEO of Accounting & Business Partners. As a hands-on controller for multiple businesses of various sizes from 1995 to 2022, she has been responsible for all the “back office” operations. Her firm manages accounting, payroll, human resources, taxes, banking, insurance, and legal work. Her favorite part of working with business owner clients is seeing them achieve their goals.
Andrea holds a Bachelor of Science in Accounting from the University of Texas at Dallas and a Master’s degree in Business from Texas A&M University Corpus Christi. She is a Certified Public Accountant and has over 25 years of experience running businesses as a financial controller and CFO.