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- Keep all receipts.
This point cannot be overstated. You could rely on IRS Publication 463 which says that you don’t need to keep receipts for expenses under $75, but why get into a fight?
- Make notes on receipts about business/investment purpose.
Great idea for dining and entertainment expenses. It can be easy to remember why you bought a fax machine it could be a lot harder to remember who you went to dinner with at Red Lobster three years ago and what the business purpose was.
- Scan receipts and keep them at least six years.
Yes, the IRS can come knocking for documentation and audit you up to six years back in some cases. However, hoping that the ink on your Menards receipt hasn’t faded away is a whole other issue. The IRS allows taxpayers to scan receipts and store them electronically. But keep a back-up, because crying about your hard drive crashing isn’t going to help you any more than “My dog ate my receipts.”
- Take a picture with your smartphone.
With today’s technology, it’s easy to say “Forget the receipt, I’ll just make a note on the receipt and then take a picture of it”. This is a great idea and there are a whole host of apps for the iPhone and Android that can help you better track your expenses.
- Don’t rely solely on credit-card statements and canceled checks.
These are important, yet insufficient without receipts. The IRS may see that you spent $422 at Staples, but it doesn’t know what you bought. It could be movies and useless technical gadgets, and not the computer paper and supplies you expensed them under. For bookkeeping purposes, these records are fantastic, but the detail is critical for an IRS auditor.
- Stay away from cash.
Using cash for expenses seems to be the absolute death-nail for my clients trying to keep good bookkeeping records and documentation for an audit. Debit and credit cards to better track your expenses and then combine them with receipts.