Receipts & Records

A very common question I get asked is - How long should a business keep their receipts/records and what constitutes good support?

 A good rule is AT LEAST three years - since this is how long the IRS can audit your records and you need to be able to show proof to support your deductions. These records can be kept by paper or digitally, but I HIGHLY suggest digitizing them all since receipts have a nasty little habit of fading over time. 

So what constitutes good support? A 3rd party documentation of the transaction is a good start - such as a receipt or even a bank statement in some circumstances. 

Whether it’s a receipt or a bank statement - you need to provide the details the IRS would want to know about that transaction - the who/what/when/where/why. Because of this - receipts will typically work better as support since you will have an itemized breakdown of the transaction in question. Additionally, even having the receipt might not be enough, you potentially need to provide additional information (like on a meal expense) such as who you were with, and what business was discussed. 

A common theme in tax court cases I read is expenses being disallowed because the taxpayer cannot prove their business use because they have either incomplete or no records, so if you want to justify your deductions in audit, you must keep complete and detailed records.

We hope that you found this informative, and if you’d like to learn more about accounting or how to save money, just give us a call or reply to this email and we’ll be happy to help you out.