Keeping Receipts for Tax Purposes – How to Make it Easy
When you file your taxes, you have two choices – take the standard deduction or itemized deductions. If you take the standard deduction, you can deduct $12,550 for a single filer and $25,100 for a couple filing jointly.
If you choose the standard deduction, receipts aren’t necessary. But, if your itemized deductions exceed the standard deduction for 2022, it pays to itemize your deductions, which requires you to keep your receipts.
So how do you keep your receipts organized for tax time?
Here’s how.
Write on the Back of the Receipts
Chances are at the end of the year you’ll have a lot of receipts. When you go back through them, you likely won’t remember what each receipt was for. To fix this, write on the back of the receipt, the store name, date, and reason for the purchase. This will make it much easier at tax time.
Consider an Electronic Backup
It’s a good idea to keep both paper and electronic copies of your receipts. If you lose a paper receipt or something happens to your electronic documents, you have a backup. To make it easy on yourself, scan your receipts every night so you don’t get behind and accidentally miss a receipt or two.
Tape your Receipts to a Larger Piece of Paper
Receipts are small and get lost easily, but when you tape them to a larger piece of paper, they stay together. Grab a cheap pack of 8 ½” x 11” paper and use it to tape your receipts to it, keeping the paper in a folder. It’s a lot harder to lose an entire folder with taped receipts than it is a single, small receipt.
Use your Smartphone
If you have a smartphone, put it to good use by scanning your receipts. You can simply take a picture and keep it in a folder on your phone titled taxes, receipts, or something along those lines.
You can also download a financial software app and use their system to take pictures of your receipts to save for tax time.
Consider only Electronic Payments
It’s a lot easier to track electronic (credit card) payments than it is cash payments. If you pay cash, you’ll likely forget about the purchase. But if you pay with a credit card, you can go back to your statements and see what you spent and even use the statements as your proof of purchase.
Keep your Receipts in a Safe Place for 6 Years
The IRS can come back to you for taxes for up to 6 years. You don’t have to keep paper receipts as that can get quite messy, but an electronic version is perfect. Keep folders for each year so you have your receipts organized and only delete them after six years.
Create a Daily Business Journal
It may feel like a lot of work, but just jotting down your expenses each day can save you should you face an audit or the IRS question something. It takes only a few minutes to write down what you spent for the day, and it can be a lifesaver if you need it in the future.
Reasons you Need your Receipts
Right now, you’re probably thinking the last thing you have time for is to create a receipt collection, right? You have a lot on your plate running a business and a household, why would you need your receipts?
Besides the typical reason – taking itemized deductions vs the standard deduction, here are some other reasons.
You’ll feel more organized
There’s nothing worse than feeling unorganized when you run a business and a household. Whether you’re taking business deductions for a business you run full-time, you have a side gig or you just have a lot of personal deductions that allow you to itemize, organization is key.
You’ll feel less stress if you get audited
The IRS can come back for 6 years asking questions about your tax returns. If you have your receipts carefully filed and easily accessible, it’s a lot easier to prove whatever the IRS is questioning when you have receipts handy.
You can stay on top of your budget
Keeping receipts can be eye-opening. If you don’t realize how much money you normally spend, going over your receipts can help you see where your money goes. It could be a good way to learn to cut back and save more money too.
You can import digital receipts in some programs
Many programs allow you to upload digital receipts or digital records, decreasing the work you must do to prepare your taxes or do your bookkeeping.
The Consequences of not Keeping Receipts
You may not think it’s a big deal if you don’t have your receipts, but sometimes it can mean the difference between getting a tax refund and owing taxes. Here’s what you could face if you don’t keep receipts.
You could miss out on important deductions that reduce taxable income; hence, losing out the the potential to invest your money
You may not be able to answer an audit properly
It could cause a lot of stress at tax time
Final Thoughts
Don’t give yourself any unnecessary stress this tax year. Learn how to organize your receipts so they are easy to access and ready to answer any questions the IRS may have for you. If nothing else, think of it as a way to save money. What if you’re taking the standard deduction, but if you had your receipts could write off even more money and save on your taxes?
Pick your favorite system and stick with it. Soon enough it will be a regular habit to save your receipts and it won’t feel like extra work especially when you see the savings it offers at tax time!
