Updated: May 26, 2020
Maybe you stash them away in a shoebox. Or maybe you keep them in your wallet until it can’t fit any more. That’s right, I’m talking about receipts. Every small business owner has them. Some hoard them, while others toss them. Whatever your policy, there’s a few things you should know about receipts and taxes.
1. Saving Receipts for Taxes When Itemizing Deductions
If you an individual filer, you may be able to use itemized deductions to receive a greater reduction in tax liability than if you use the standard deduction. Here’s a look at items you can itemize and receipts you should hold on to:
Charitable donations: Whenever you donate an item — from clothing to a car — you want to ask for a tax deductible receipt or tax receipt for donation that provides you with an official record of your donation. Be sure that an estimated value for the item is included on the receipt.
Mortgage interest or taxes: Store receipts from mortgage and tax payments made for your home throughout the year.
Educational expenses: Receipts from tuition paid, books, supplies, lab fees, transportation and travel costs and even researching expenses.
State and local income taxes: Keep tax forms from years you want to claim.
Business travel and entertainment expenses: Hold on to receipts from food purchases from clients, as well as oil changes, repairs, gas and mileage for business or work if you’re not previously reimbursed.
Business use of your car and home: Keep receipts of household expenses, including mortgage, electric, gas, water, taxes, insurance and repairs.
Medical and dental expenses: Keep track of prescriptions and medical bills paid, including co-pays, lab tests fees and emergency room visits.
2. Keeping Receipts for Tax Purposes in Business
When operating a small business or sole proprietorship, it’s important that you hold on to your receipts because they account for all of the purchases and transactions you hope to deduct, or claim as a loss or gain.
The IRS offers tips to make keeping receipts for tax purposes a simpler process. First, you want to note what types of receipts you should keep:
Gross receipts: If you are in business, gross receipts account for your income. They include cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips...
Purchases: Purchases are considered the items you buy and resell to your customers, and can also include the cost of raw materials or parts to manufacture items. Hold onto invoices, credit card sales slips, cash register tape receipts and canceled checks as receipts.
Expenses: If you have incurred costs (aside from purchases) while carrying on with your business, these are called expenses. Documents needed to keep track of your expenses include those listed above as well as account statements and petty cash slips for small cash payments.
Also, if you have assets such as machinery, furniture or any other items used to run your business, you want to keep track of them as well.
We have bookkeeping specialists that can come to your business site to assist you with organizing the paper documents and set up a system to assist you organize all your paperworks.
View Our Services here!
Call Irvine Bookkeeping today if you have any questions regarding statement of cashflows. You reach us at 949-545-9980 or visit us at www.irvinebookkeeping.com