One question that is frequently asked of us at The Becerra Group is “What’s the best way to organize my receipts? They’re EVERYWHERE!” The good news is you have many choices.
Did you know that according to the IRS, you can organize your taxes, income records, and receipts using any record-keeping system you pick, provided your records are transparent, precise and the required documentation is on hand and available to inspect? This means you can be old school with paper or tech advanced with digital files.
Tips for The Tech Lover
If tech is your preference, consider using one of the many receipt apps available. Yes, you could scan your receipts and documents on your printer scanner and store on your hard drive, but you still need to back those files up regularly off your hard drive or store them in the cloud for safekeeping. (Remember how much you lost the last time your PC bailed on you?) You’re already on your phone 24/7, so why not just scan with it and store those receipts directly to the cloud? For the worriers among us, you can also download the scanned files to your hard drive if you wish.
TBG’s recommendations, in no specific order:
Expensify lets you snap receipts with your smartphone and can be set up to import data from your bank and credit card accounts. Don’t have the receipt handy? You can manually enter cash receipts, and it has a mileage tracker.
Dext, formerly Receipt Bank lets you scan and organize your files any way you want. You can use the mobile app, your web browser, by email, or even directly download from your bank and credit card websites. Dext can also import from Amazon, PayPal, Dropbox, and other major sites.
Shoeboxed lets you scan and organize your receipts, and you can even mark receipts as “deductible”, “reimbursable”, or “I’m not sure” (try not to use that last one too often or tax time will be a bear for you). If it’s marked reimbursable, Shoeboxed will even attach the receipt to the contact, which then makes billing for your work a little easier. Shoeboxed can also track mileage for you. When you go back to live business meetings, Shoeboxed can scan business cards.
Options For The Paper Lovers
What if you aren’t a techie and you hate your phone? Not to worry, plain old paper files will work just as well. If you choose the paper route, take some time to set up your filing system first. Paper is easy to lose, especially when it sits among hundreds of more documents in a stack on a desk, box, or closet. Employing old-fashioned folders with tabs or attachable labels is an excellent record-keeping system. Do you run your office out of your car? Large envelopes will work just as well. To get started, just buy a box of folders with labels and something that will hold the folders – a plastic file box, a cardboard Bankers box, or even a small filing cabinet. (Want to save a few bucks? Check your local thrift store, often these items are donated.)
Decide on your categories and label the files accordingly. Each person’s tax records are somewhat different so the categories you end up using may vary from the list below, but the list is a good place to start:
- Income: This includes W-2s, and all Form 1099s.
- Medical: All medical expenses that have been paid.
- Banking: This includes mortgage interest, student loan payment history for the year, brokerage account statements, 401k or 403b statements.
- Childcare: Receipts for payments for childcare. If you are paying an individual, you will need to obtain their name, social security number, and address.
- Home Expenses: Receipts for tax deductible expenses like solar tax credits, etc.
- Property Taxes: Receipts and records for property taxes, both for your home and vacation or investment properties.
- Charitable Donations: Receipts for donations of cash and goods.
The Self-Employed Will Need More File Folders
If you are a sole proprietor, freelancer, or gig worker, you will also need to track your business income and expenses separately from the rest of your receipts. Consider using the following basic categories:
- Business Income (or Sales)
- Inventory Purchases
- Business expenses (consider a separate folder for each):
Dues & Subscriptions
Home Office Expense (utilities, home repairs, etc.)
Insurance (business, not health, auto or homeowner)
Legal & Professional Services
Licenses & Permits
Meals & Entertainment
Rent or Lease
Telephone & Internet
You can always add additional folders as you encounter expenses not on the list above.
Once your filing system is ready, every time you receive an invoice, receipt, or tax document, place the item in the correct folder. Be sure to make a copy of any receipts that are on heat sensitive paper (for example, faxes or gas station receipts) because they fade quickly, so file a copy of that receipt instead. Whatever you do, don’t leave heat-sensitive paper in your car – you’ll end up with a black burned document that is completely unreadable.
Once your tax return has been prepared, don’t toss the receipts. You can gather the receipts, place in a large envelope and label it with the tax year if you want to reuse your file folders. Or, if space is not an issue, simply add the tax year to the folders, move to the back of the file cabinet, and set up new folders for the new tax year.
Additional Tips for Self-Employed
- When you have work-related expenses, you are going to deduct, be sure the receipt shows the item(s) purchased, the dollar amount of the expense, and the business address. We suggest you also note on the receipt the expense type if it is not clear based on the item purchased.
Meal and entertainment receipts require additional documentation. When a meal is purchased for a client meeting, 50% of the cost of the meal can be expensed. It must include the name of the establishment, its address, the date of the meal, the name of the client(s), the dollar cost, and be accompanied by a written note documenting the business topic discussed. (for the tax periods 2020 and 2021, 100% of meal expenses can be deducted if purchased from a restaurant type place).
- We’re often asked if bank or credit cards statements are adequate for documenting expenses for tax purposes as opposed to providing the actual receipts. The answer to that question is an emphatic “no”. Credit card statements and bank statements do not show the required written expense notes mandated by the IRS. The IRS only accepts notated receipts, copies of invoices, or cancelled checks to validate expenses.
The hardest part of being organized is getting started. You must scan the receipts or bring the paper receipts in from the car. Do not leave them in your car because they are bound to get lost. You have to file those receipts. As Yoda once said, “Do. Or do not. There is no try.” Regardless of what you ultimately decide to do – become organized or continue to use the shoebox under the bed – The Becerra Group is here to help you with your tax, accounting, and bookkeeping needs. Give us a call at 505-462-9090 (NM) or 830-254-4708 (TX), or click here and complete our online contact form.