Technically, it does not hurt to save every single receipt and there are tools available to easily convert hard copies to digital. However, that doesn’t mean you need to save receipts for taxes in every instance.
Should I save my receipts?
The answer is yes if you need to justify an expense on your tax return. However, those that file a simple tax return and elect the standard deduction usually do not need to save their receipts for everyday purchases. Typically, you will not need a receipt for groceries as that’s not an item you can itemize on your tax return, unless sales tax is involved. It’s a different story for receipts related to charitable donations and mortgage interest payments as that can generally be claimed on your tax return.
Should businesses save all of their receipts?
The general answer is yes. As a business, you will likely be offsetting your income with many expenses that are ordinary and necessary in your business. Far too many tax audits result in unfavorable outcomes because of a lack of proper audit support. Receipts for meals and travel expenses are frequently misplaced, which can be hurtful should you be audited. In addition, make sure you document the purpose of the receipt for meals and entertainment as well as who attended the event and when it occurred as that’s an IRS requirement.
There is some relief for not having supporting documentation. IRS publication 463 indicates that you don’t necessarily need to maintain receipts for expenses less than $75 and you may utilize other credible evidence. Still, it’s not worth the risk if your business should face an IRS audit in the future.
How long should you keep receipts?
Generally speaking, you should keep business receipts and personal receipts that support a deduction for at least six years. The IRS can audit your tax return for up to six years and in some cases even further back.
Should I use cash for business purchases?
Try to stay away from cash when making a business purchases. It’s difficult to justify the use of the cash and to clearly link the withdrawal with the cash purchase. Credit and debit cards offer greater audit protection to the taxpayer or business.