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February 15th, 2008 at 6:52 pm
Organizing tax receipts
Posted by The Foo in Life through my eyes

With the ongoing planning of my new business (which I’ll be officially launching mid this year), I am trying to explore the best way to organize future receipts incurred for tax purposes.

In my personal finances, we’ve always taken standard tax deductions and not itemized anything (didn’t really need to). Receipts and tax related stuff go into one folder that is labeled for the relevant year. When taxes are filed, I put them into a big envelope, with the labeled year and store it in my filling cabinet. I can’t do that with my business as there is itemization involved and a lot more receipts.

While researching the web, I’ve found a multitude of ways people organize their receipts for the IRS:

1) Scan the receipts into pdf form with a Fujitsu’s Scansnap scanner, store them under appropriate folders on the computer. Then burn a CD at the end of the year, label it “200x Tax Receipts” and store it in a fire proof safe.

2) Buy an accordion file (one with a minimum of 12 slots/ pocket), label each slot for the month of the year. Record each receipt in Quickbooks or Quicken and then store them within the relevant month. Label it “200x Tax Receipts” and keep in secure place after the year is over.

3) Use Shoeboxed to scan organize email/ real receipts digitally

4) Use Neat Receipts to scan and store your receipts digitally

5) Put receipts in big envelopes categorized with the appropriate labels e.g. Food, Entertainment, Business Equipment, Office Expenses, Travel, Advertising, Donations etc. At the end of the year or after taxes are filed, bundle them, label and store.

6) Use Diners, American Express or dedicated credit cards for all business expenses. They’ll send an itemized invoice at the end of the year. An accountant can then sort out the relevant deductible expenses.

7) Store in paper folders, boxes or shoeboxes; then transfer every year to bank box or safe.

8) Store in a big box categorized by type (and not date). Receipts are stored after it is recorded in Quickbooks or other financial software.

Item #6 doesn’t tell me much on how the receipts are stored or organized. I’ll probably cross that one off my list of options to consider.

Regarding what are the acceptable practices in the taxman’s eyes, I’ve read conflicting advice:

- scanned receipts are accepted but if audited, they can question its authenticity
- scanned receipts aren’t allowed
- rule of thumb for keeping receipts is about 3 years
- you must keep receipts for at least 5 years
- receipt under $75 can be thrown away (according to the IRS) but you’ll have to justify the amount if audited.
- receipts aren’t needed for anything below $10
- receipts aren’t needed for anything below $500

(Definitely will have to seek the advice of an accountant to get the real answer)

I’ll have to decide which is the best way to organize my tax receipts. Right now, until I get an official answer on whether IRS accepts scanned receipts, I’ll store the originals and won’t bother scanning them (as it could be a waste of time). I’m inclined to buying an accordion file folder, storing the receipts by month and using Quickbooks to record/ itemize (which I already have).

How do YOU organize your receipts for tax purposes and deductions?


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  • Organize receipts? save them? what's this all about? LOL

    I never do. It's a failing of mine.
  • Paper Receipts fade over time...so
    1.Enter deductible receipts into software such as Quicken,
    Quickbooks, etc.
    2.Put deductible receipts in an envelope until you accumulate 150 receipts,
    3.Use GForce Digital Services paperless receipt service
    for $49 to scan each unorganized receipt to a PDF,
    digitally organize & backup to CD
    4.Just copy each CD to the same folder on your computer
    each time you use the service and your receipts stay
    automatically organized for you!
    5.Shred the paper receipts
    6.Repeat as many times as necessary to get rid of all of
    your deductible paper receipts -
    ** You can send any date receipt, with any service, and
    no organization is required - includes FREE shipping.
    www.GForceDigital.com
  • I love this entry, because you know what? You can spend time and money organizing receipts yourself, but it's such an unappetizing task for so many people, that most receipts fall into total disorganization. This is not good. And Shoeboxed is here to help.

    Whether you need your receipts for taxes, reimbursements, donations, insurance claims, or for simple budgeting, Shoeboxed can help you get them under control easier and more cheaply than any other service out there.

    But to actually answer your question about taxes, the IRS does in fact accept digital receipts. There are a couple of small exceptions with regard to business receipts (i.e. an employee can't write off a hotel receipt that isn't itemized), but generally you'll be fine relying on your digital copies. Shoeboxed also mails back any paper receipts you send us, so you'll have the backup as well if you need it.

    We've made it our life's work to eliminate the stranglehold receipts have on your productivity, including your tax filings. If this means scanning in your receipts for you, we'll do it. If this means getting rid of paper receipts altogether... well, rest assured; we're working on it.

    Thanks!

    Dan Englander
  • I agree with Dan this is a great entry. Paper receipts have been a problem for many years. Some reasons are: they come in many different sizes, including regular-page sizes, they fade, tear, get lost, and are hard to index and store.


    Why keep receipts at all? Receipts are required by the IRS as support for tax deductions. The IRS requires you provide proof you "incurred the cost" for each deduction taken. This usually requires keeping your credit card receipts, invoices, etc.


    To add to what Dan mentioned regarding taxes, the IRS does in fact accept digital receipts, but there are important requirements, other than deductibility, that must be met. They are outlined in IRS Bulletin 1997-13 on Pages 9-10.


    Some highlights are: (1) digital records must maintain a high degree of legibility, (2) the taxpayer must retain digital records as long as needed to provide proof of a deduction, (3) digital records must be stored on a media that prevents alteration or if altered provides an audit trail, (4) digital records must be able to be indexed to your books and records, (for many your checkbook), and (5) the taxpayer must aways keep the indexing system used.


    To provide solutions to the points referenced above, we use PDFs and CD-ROMS. The IRS also uses PDFs and CD-ROMS. See the FAQs section of our website to learn more.


    In summary we have been working on our paperless system since 1991. Our service is competitively priced and is pay-as-you-go. We guarantee results in writing or your money back. We do the organizing and scanning, return your paper receipts, provide your digital receipts on CDs which make great offsite backups, and provide you with an easy-to-use "paperless system" to store thousands of organized digital receipts on your computer which are just a mouse click away.


    We would enjoy helping you. We are GForce Digital Services.


    Thanks and remember to go paperless!

    Tom Gerber
  • Mel
    @Dan Englander & @Tom Gerber
    Thanks for the info guys. Still contemplating what the best option is, will keep your products in mind.

    @Dan Englander
    Shoebox is a good idea but has some limitations which I experienced which is stopping me from using it. I emailed one of your support staff about it --- basically it is the inability to edit dates of receipts, the inconvenient tab system (to see the actual receipt) and tagging (for search). The email receipt algorithms also don't read well -- i guess it's still a work in progress.
  • hmmm. I like how the two replies are both from companies selling receipt services.

    Anyway,
    I feel your pain. It is really difficult finding any reliable information on how to organise and store receipts.

    I am currently doing it the same way you mentioned you would do it, organising by month and using quickbooks.
    I have my own business that I run part time and I work at another small business part time.

    I had implemented the same receipt system at the small business that I work for. It was a huge improvement over the buy quickbooks and then do nothing system that they had when I started. :)

    Now that you've probably used your system for awhile what do you think? Is it working?

    Scanning (with GForce/Shoeboxed and friends) seems like a good idea too, especially if they send back the receipts (which unfortunately costs extra). But I'm sure it does not make up for a good manual system being in place too. Ahhh, the limits of technology.

    I bet Shoeboxed is better now as they have a bit more experience. Software as a service (or ASPs) providers tend to get better over time and then end up much better in the long run. It is good for small businesses to leverage these to save time and focus on core competencies. There is a good book about that actually called Go It Alone by Bruce Judson (it's about extreme outsourcing when starting one/two person businesses). And now I'm rambling.
    But maybe I've said something helpful or at least sympathised.
    I really wish there was reliable info online about small business receipt and tax handling.
  • Kristie Etzel
    I did a search on the web for tax receipt organizing and found your post. Thank you so much! I am a new small business owner and don't have a clue as far as the receipt organizing issue goes. Glad to hear your input. I really feel like it will help me in my future tax filing.
    I think I'm going to go with the Quicken/Quickbooks method. What do you think of the receipt scanners that you can get at these office supply stores? Almost bought one today, and decided to wait till after I've researched a little.
    Sincerely,
    K.Etzel
  • Mel
    @Kristie

    Glad you found the post useful. since I wrote this article, i've experimented and settled with using neat receipts (to store all my receipts digitally) and export them (using the added feature) into Quickbooks. That saves me from keeping paper receipts and I can search past receipts really fast. I bought the neat receipts mobile scanner and case which I bring on my business travels so I can scan all my receipts immediately and quickly. With the many receipts I have when i travel, it is so much easier and more convenient to scan/ keep it electronically.

    To answer your last question, I think you won't find anything better than neat receipts (http://www.neatco.com) at the moment -- so i won't bother looking at other brands. Trust me, as I've done extensive research on this too. It costs around $200 but it is money well spend for the time saved and convenience it gives. you don't need to dig through stacks of receipts to find something.

    Quickbooks or some other accounting type software is a must for a small business and neat receipts adds the save guard on knowing that you always have your receipts on hand. BTW: IRS does accept scanned receipts.

    Good luck with you new business!
  • jbm.pdx
    Too bad we haven't heard from the IRS yet. Anyway- just purchased the Fujitsu Scansnap s300m (the portable-Mac version)- as well as the Neatworks for Mac 2.0 software (available online @ the Neat Co. website w/o having to purchase their hardware). Haven't had any compatibility issues whatsoever between Mac-Scansnap-Neatworks. Like everything else in life- particularly technology- there is a bit of a learning curve.

    The Scansnap is great- although I'm thinking the desktop version may have worked better for me than the portable version- for its increased speed and capacity. Either way- my research indicated that they are both the best thing going at their particular price point.

    The Neatworks software is pretty amazing as well. Its not a silver bullet as some reviewers/promoters lead us to believe- but it must be exponentially better than anything else available a couple of years ago. Most likely- my experience will be even more positive as I work my way up the learning curve. I'm having some issues with character recognition. So far there are more misses than hits- and the occasional hits take more than a minute sometimes. However- the 'drag & drop' feature is turning out to be the most useful feature. This allows me to drag certain values (date-amount-merchant-misc. text) over to the attached database template- rather than having to enter the data manually. Once the data has been transferred to the database- well- then the database does what databases do.

    My advice to others who chronically struggle to keep up on the paper trail of daily life- is to keep in mind that these products are mere tools. Like a lever- the output in relation to the input is potentially real and significant- but both have their limits (ie, breaking point)- and both can throw your back out if not used properly.

    And one last thing- don't be motivated by how much time you are going to save- because if you're like me- you might be lying to yourself. How can I save time when I never previously invested the time? What I've been looking for all along has been an easy way out. Well- don't tell Scansnap and Neatco I said this- but there isn't one. I'm still in the process of accepting "documentation" as a way of life (unless I simply decide to pay thousands of unnecessary dollars in taxes over my lifetime). What I do acknowledge is that its all a pain in the ass and a major inconvenience. This basically leaves me with two options- doing it this way- or the way my grandfather used to do it. Either way- it still comes down to one piece of paper at a time. At some point- sooner or later- I still have to lose (ie, delete) the Starbuck's Americano and scone receipt from my work related move in 2006. I'm sure there are many ways to do this- and some less-consuming and less-inconvenient than others. But back to the fallacy of saving time- the more I accept reality- the more time i spend dealing with all this paper. The immediate payoff so far is the sensation of being in control. If I keep this up- with the help of my new tools- in a couple of months I think I might actually have some control. At the end of the year-I should be able to save a significant amount of money when I file taxes. However- if I were doing this to save time- I would have already quit.

    I guess- if its really this bad- maybe I should subscribe to an online service. To you Shoebox and G-force people out there- you should consider me the ultimate test case- and if your service/product works for me- then it can work for anyone. By the way- I will consider all offers.

    To everyone else- good luck and have fun.
  • B
    I handle the bookkeeping for two small businesses and use the system I learned from a previous employer. I don't really understand why a small business would want to incur even a modest $200 expense for digital scanning of receipts. We put almost all expenses on business dedicated credit cards and collect the receipts separately. I enter the receipts into Quickbooks as credit card or cash expenses as they are incurred and then stick them in an accordion file. We have a lot of receipts so I prefer an A-Z accordion with the receipts organized by Vendor. If you think you will often reference them, you can paper clip each vendor together within the file system. Envelopes can also be handy within the accordion to keep small receipts from disappearing. Using credit cards has the benefit of a second proof of purchase - the credit card statement. You can even staple the receipts from a particular statement right to the back of it. Just hang onto them until the statement comes, reconcile, staple, and file.
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