What’s the Point of Keeping Receipts?
With the modernization of today’s world, you may wonder what the point of keeping receipts is. For transactions you make with your business debit or credit card, they will show up in your bank feed, unlike transactions you make with cash. Because of this, you may think you don’t need to keep your receipts if you’ve paid with a card. However, it’s vital to keep receipts of all your transactions, for a couple of different reasons.
The most important reason to keep receipts is for proof in case of an audit. The IRS requires that businesses keep records of all transactions that occur within the business, whether it deals with expenses, revenue, assets, taxes, or other. If there is no proof of a transaction, you cannot claim it occurred, which can lead to further issues. Additionally, per the IRS website, bank statements alone may not be enough proof regarding certain transactions, and you may need additional proof, such as a receipt: “Note: A combination of supporting documents may be needed to substantiate all elements of the expense” (link to the specific IRS webpage below).
Another reason to keep receipts is for the specific purchase details they provide, which can be helpful for tax savings purposes. Transactions made with a card are included on bank feeds, but typically only show the date of purchase, the vendor, and the amount paid. No details are typically provided on what exactly was purchased. If you went to Office Depot and spent $200, that could have been $200 spent on office supplies like pens and paper, or $200 spent on office needs like a coffee machine and coffee pods. Although you spent $200 at an “Office Equipment” store, the amount you are able to deduct on your taxes varies based on what you purchased.
Although keeping receipts is important for audit and tax savings purposes, there are situations in which you do not need to keep receipts. These include: business expenses less than $75 (other than lodging expenses claimed as travel expenses), transportation expenses where receipts aren’t available (for example, bridge and road tolls), and per diem allowances for meals and lodging.
To recap, it’s in the best interest of a business owner and their company to keep receipts of all transactions, big or small, for audit and tax savings purposes. Though there are exceptions to this rule, it’s better to err on the side of caution when it comes to your business. Be sure to always consult with a tax professional for any questions related to keeping receipts, or if you are unsure of what kind of deductions your purchases qualify for.
IRS Referenced Website: