From the transactions that are recorded in a company’s books to the amounts listed on their tax returns, almost all financial transactions are recorded and generated from the humble receipt. Who knew that the little slip of paper that usually gets crumpled up and lost under car seats, or bypassed with buttons at check-out counters, or dumped into the little trash can icons in email browsers could be so important?
All businesses and organizations should practice good record keeping habits with their receipts, as it helps ensure accuracy in a company’s financials and protects the business.
According to the IRS, “Good records will help you monitor the progress of your business, prepare your financial statements, identify sources of your income, keep track of your deductible expenses, prepare your tax returns, and support items reported on your tax return.”1
Receipt Basics
Businesses and organizations should get in the habit of saving all of their receipts.
Receipts should clearly show:
- Payee
- Date
- Amount paid
- Proof of payment
- Description of items purchased or services received
- Amount of each item or service2
Having an itemized receipt that clearly shows the items above is the best way to substantiate a charge. While bank statements may show a total charge and payee, it is often unclear exactly what was purchased by looking at bank statements. Receipts provide a more detailed record of what was purchased or received and when. Reviewing these receipts can help business owners more specifically pinpoint costs of goods or services, as well as help ensure transparency of transactions and prevent fraud.
When it comes to keeping receipts, it is best to adopt the “better safe than sorry” attitude.
Retention of Receipts
Businesses and organizations are required to keep receipts for at least three years from the date of filing the corresponding tax return. This follows the period of limitations, the time in which a tax return can be amended, which is three years given that it was accurate and filed.3
While keeping supporting documents for three years is the minimum required length of time, businesses and organizations may want to keep receipt records longer. If the IRS selects a business for an audit and finds substantial errors or indications of fraud, the IRS can request receipts for additional years. Often the IRS does not go back further than six years.4
Receipt Storage and Filing Systems
No matter how a company chooses to store their receipts, the important thing is that they are being stored in a consistent manner and that they can be easily located if needed.
See some of our tips below on different methods for storing a business’s receipts:
Paper Storage & Filing
Some business owners like to stick to the tried and true methods of keeping receipts. This system may be easier if many goods are purchased in brick-and-mortar locations that print receipts or if bills and invoices are mailed via paper to the business regularly.
When using this method, make sure receipts are organized and filed in their set location as soon as possible. It can be tempting to shove all of the receipts in a messy shoebox or leave them adrift on a desk in the office, but this increases the risk that important receipts are lost and creates a timely mess if they need to be located in the future.
Tips for storing paper receipts:
- Store receipts in a filing cabinet dedicated to just the business’s receipts.
- Sort receipts into folders that are clearly labeled with the month and year.
- Always add new receipts to the back of the folder, to help sort receipts by date.
- Consider having two folders per month – one for purchases/expenses and one for income receipts. Alternatively, sort receipts at the end of the month into two piles and staple all expense receipts together and all income receipts together.
Digital Storage & Filing
Some businesses may find it more convenient to save digital copies of receipts. This system tends to work better for companies that order items online and get digital receipts, or if monthly bills and statements are regularly paid online. Many businesses and organizations also like this storage option since it saves physical space in an office. For companies that are mobile or work remotely, digitally uploading receipts can be a game changer.
There are many online services that offer receipt upload and organization options, as well as technology that can assist with scanning paper receipts. Depending on a business’s budget and needs, these services or devices can be helpful. However, digital storage of receipts does not need to be overly complicated. Taking a picture of a paper receipt on a phone and saving it to a cloud-based filing system can work just as well.
Tips for storing digital receipts:
- Store receipts in one place, such as a dedicated folder or drive on a computer.
- Make sure the storage file is easily accessible across devices and location, to make uploading receipts when they are received as easy as possible. Consider a cloud storage option where owners can sign in from anywhere.
- Sort receipts into folders that are clearly labeled with month and year.
- Change the name of receipt files so that they are all labeled consistently. Include the date and place of purchase. (Example: 01.01.2024 – CVS, 01.02.2024 – Walgreens, etc.)
- Consider having two folders per month – one for purchases/expenses and one for income receipts.
QuickBooks Online Storage & Filing
Many small businesses who already use QuickBooks Online to help them with their bookkeeping can also use it as a digital receipt saving tool. The QuickBooks Online program has an attachment feature built into transaction entries that allows files, like receipts, to be attached. They also have easy uploading options for receipt files that can work seamlessly with an additional digital filing system or can become a business’s primary method of keeping receipts.
Watch the video to learn more about how to use QuickBooks Online to file receipts.
For more information about this topic or to speak with an accountant about record retention practices, please contact us at Nottingham and Associates, CPA’s.
- Internal Revenue Service. (2024, Aug 22). Why should I keep records? https://www.irs.gov/businesses/small-businesses-self-employed/why-should-i-keep-records ↩︎
- Internal Revenue Service. (2024, Aug 20). What kind of records should I keep? https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-records-should-i-keep ↩︎
- Internal Revenue Service. (2024, Jul 22). How long should I keep records? https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records ↩︎
- Internal Revenue Service. (2024, Aug 19). IRS Audits. https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits ↩︎
