Are you hoping to reduce your taxes as an entrepreneur?
If so, you might wonder if it’s absolutely necessary that you’ll need to keep copies of your receipts at all times. While at the moment it’s not required by law, you might need to show your receipts to justify business tax write offs.
As a result, many entrepreneurs forgo keeping receipts altogether. However, in the event of an audit, this can land you in trouble.
Here’s what you need to know about receipts for tax write offs.
Business Tax Receipts
A business tax receipt is a document that shows that your company made a purchase solely related to your company’s operations. These can include, but are not limited to:
- Meals (for business meetings)
- Transportation (business travel)
- Stationery purchases
- Business education
- Office equipment
You’ll want to keep a receipt of these purchases to prove to the IRS that you bought them. You’ll want to use a business credit card or have an invoice made out to your business. You can use this receipt app to automate your business receipts.
What Documents Should You Keep?
What happens if you don’t have a receipt or you lose a receipt from a vendor? Here are some alternatives you can consider:
You can keep credit card statements or bank statements that prove your payments. You can also request an invoice made out to the name of your company. You’ll also have to show proof that you paid this invoice.
If you receive paper receipts or invoices, make sure to take a picture or scan of them. Save these to a cloud storage drive so that you have a backup in case the document gets lost or destroyed.
Now let’s look at the best practices to improve your bookkeeping and tax obligations as an entrepreneur.
Your first step has to be to record every income and expense your company incurs. Once again, make sure that you have documentation to back up this information. Keep a pay stub that proves that you received income and keep a receipt that proves that you made a payment.
Make sure that you keep your receipts for at least five years. You can receive an IRS audit years after you file a tax return. You want to hold onto 1099 forms, etc.
When making business purchases, it’s always best to pay with a card. These electronic payments are easier to show the IRS. If you pay with cash, then you must receive a signed or stamped invoice to prove payment.
That’s How to Handle Business Tax Write Offs
Now you know how to handle business tax write offs for your company.
You want to keep a receipt of every payment your company makes in the case of an IRS audit. Try to make payments using a company credit card and always keep digital copies of your receipts.
Make sure you also keep records of all income earned. You want to keep records for at least five years, as audits can always come at a later date.
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