Learn How to Keep Your Business Receipts Organized
When first starting a business, you might want to keep receipts gathered in order to deduct business expenses on your income tax and more. Rather than stuffing all of your business receipts into a desk drawer, a better system is required for when it's time to do bookkeeping. Of course, discovering a disorganized mass of receipts can create a mess of trouble.
Keeping business receipts organized can help business owners monitor the progress of their business along with preparing them for financial statements. It also helps identify sources of income, keeps track of expenses, and prepares items for tax returns.
A Better System
Over the years, it's important to develop a good filing system for receipts. For example, this may include a filing system that makes data entry easy and allows you to retrieve a particular receipt if you need to search for a specific one by date or category.
One example of keeping business receipts organized is to keep a series of file folders labeled by month and year, such as "Receipts November 2017". The two most current file folders can sit on top of your desk so that when you collect receipts on your various rounds, it's easy to pop them into the correct monthly folder.
Then, when you do your monthly data entries, you can take the appropriate monthly file folder and sort the business receipts into piles based on their income tax classifications. For instance, you can paperclip all the software receipts together, all the food and entertainment expense receipts together, and all of the automobile-related expense receipts together. When you're finished entering the data, you can put the receipt folder of the month in the appropriate place in a drawer of one of your filing cabinets.
If you're a business person with a lot of expense receipts, it's easy to adapt the same system outlined above along with more frequent entries.
Make Copies or Digital Images
If you are trying to make the shift to a "Paperless Office" like most of the modern world these days, you can scan expense receipts and store them with other digital accounting information. In fact, some of the newer cloud-based accounting software applications have mobile apps that allow you to take a mobile phone snap of an expense receipt and record it on the fly.
For those conducting business in Canada, paper copies or digital images of expense receipts are generally acceptable to the Canada Revenue Agency (CRA) provided they are clearly legible. If not, the CRA may demand to see the original paper documents during an audit or routine request for documentation. Thus, the originals should always be kept for the prescribed time, which is on average for a suggested six years.
Ease Tax-Time Burden
The payoff for having taken the time to organize your expense receipts before you filed them is in doing your business's income tax return. For one thing, you'll have all your receipts that are going to serve as proof for your business-related income tax deductions. For another, having already sorted your receipts by business expense categories means all of your relevant receipts for each category are ready to tally, making filling out your income tax return quick and easy.
Note: In Canada, if you operate a sole proprietorship or a partnership, your business expenses are entered on the T2125 form that is part of your T1 personal income tax return. If you are operating your business as a corporation in Canada, you will claim your business expenses on your T2 corporate income tax return.
When Your Income Tax is Filed
Because so many income tax returns are now filed online, it's no longer common or necessary to send your expense receipts in when you file your income tax. Instead, put all your relevant receipts for the tax year in a single folder labeled by year, such as "Tax Receipts 2018," and add the folder to your filing cabinet, whether digital or physical.
If you ever have any kind of dispute with the Canada Revenue Agency, IRS, or simply get audited, your receipts will be crucial evidence.