Keeping track of receipts for your small business is very important: it keeps you organized and on budget, and it can be a big money-saver when you file deductions at tax time. According to the IRS, good records will help you:
- Monitor the progress of your business
- Prepare your financial statements
- Identify sources of your income
- Keep track of your deductible expenses
- Keep track of your basis in property
- Prepare your tax returns
- Support items reported on your tax returns
Keeping records isn’t just helpful for filing your taxes and monitoring your finances—it’s a legal requirement imposed by the IRS. But which records do you need to keep? And which ones should you send to the shredder?
The IRS is not a big fan of estimating your expenses. If you are going to claim a deduction, you’re going to need to keep track of:
- When: The date of the transaction
- Where: Where you bought the item
- What: What the item was
- Why: What purpose it served in your business
There are three crucial documents you must keep—I call these three documents the Golden Triangle. You have to keep the receipt from the store, the statement from the credit card company, and a bank statement showing it was accurate. When, where, and what are generally found on the store receipt, which is why the IRS loves when you keep them.
In order to claim a deduction, the purchase has to have proven economic impact. To prove economic impact, you’ll need all three proofs of purchase. Amazon and Walmart are great examples of why you’d need to document well, because you can buy everything from these companies.
If you have a bank statement from Walmart, it doesn’t automatically mean the purchase was for office supplies. You could’ve purchased that night’s dinner or a new digital camera for your family’s vacation. You have to retain the receipt that says you made a business purchase for items like pens, paper and ink cartridges.
While receipts, bank statements and credit card statements are crucial to your business record keeping, there are other documents you may also need to keep on file for the future. Not sure whether or not you’re keeping track of everything you need? Give us a call and let’s talk about your company’s needs.