How to Keep Track of Receipts for Small Business

Keeping accurate track of receipts is a fundamental practice for any small business, providing a clear picture of financial activities. This practice is instrumental in maintaining financial clarity, enabling precise expense categorization, and facilitating informed business decisions. Diligent receipt management also plays a significant role in demonstrating compliance with tax regulations and preparing for potential audits. Establishing a robust system for receipt tracking from the outset helps businesses streamline operations and avoid potential financial discrepancies.

Essential Receipt Details

For a receipt to serve as valid documentation for tax or audit purposes, it should contain specific pieces of information. Every receipt needs to clearly display the date the transaction occurred and the name of the vendor or business where the purchase was made. The total amount paid, including any applicable taxes and service charges, must be legible. Additionally, a specific description of the goods or services purchased is necessary, as general terms like “office supplies” may not provide sufficient detail.

Proof of payment, such as an indication of cash, credit card, or check, should also be present. While the IRS generally does not require receipts for expenses under $75, with the exception of lodging, it is still advisable to maintain some form of documentation for all business-related purchases.

Choosing a Tracking Method

Small businesses have various methods for tracking receipts, from manual systems to digital solutions. A manual method often involves using physical folders or binders to store paper receipts. Business owners typically categorize receipts by expense type or chronologically, placing them directly into designated compartments after each transaction. This approach provides a tangible record, but it can be time-consuming to manage and locate specific documents.

Digital methods, such as scanning apps and cloud storage, offer increased efficiency. Owners can use a smartphone app to take a photo of a receipt immediately after a purchase. The app can extract relevant data points like the date, vendor, and amount. These digital images are then uploaded to a secure cloud storage service, allowing for remote access and reducing physical clutter.

Integrated accounting software solutions like QuickBooks or Xero streamline the entire process by combining expense tracking with broader financial management. These platforms often allow direct uploading of receipt images, either through a mobile app or by email. The software can then automatically categorize expenses based on vendor or keywords, linking the receipt image directly to the corresponding transaction in the accounting ledger. This integration provides a comprehensive and easily searchable record, simplifying financial reporting and tax preparation.

Organizing and Storing Records

After receipts have been captured using a chosen method, establishing a structured organization and secure storage system is important. For physical receipts, organizing them chronologically or by expense category, such as “travel” or “office supplies,” helps in quick retrieval. Placing these sorted receipts in clearly labeled folders or binders maintains order and prevents misplacement. Digital receipts benefit from consistent naming conventions, such as “YYYY-MM-DD_VendorName_Amount,” and a well-defined folder structure within cloud storage. Regular backups to an external drive or a secondary cloud service protect against data loss.

Regarding retention, the Internal Revenue Service (IRS) generally advises keeping tax records, including receipts, for at least three years from the date you file your tax return. However, this period can extend to six years if a business understates its gross income by more than 25%. Records related to property should be kept until the period of limitations expires for the year in which the property is disposed of, plus any additional years required for depreciation or gain/loss calculations.

Addressing Missing Receipts

Despite diligent efforts, a small business owner might occasionally find a receipt missing or unobtainable. In such instances, alternative forms of documentation can often be used to substantiate an expense. Bank statements or credit card statements, for example, can prove the date and amount of a transaction. Invoices or canceled checks may also serve as valid evidence of a payment.

For expenses like mileage, a detailed written log documenting the date, destination, miles driven, and business purpose of the trip can be acceptable. When a receipt is unavailable, it is important to create a detailed record of the expense, clearly noting the reason for the missing receipt and cross-referencing any alternative documentation. Maintaining a comprehensive log of these instances can help justify deductions if an audit occurs.