It’s time for a more efficient approach to your tax returns. Start by trading in your shoebox for a scanner. Next, follow these guidelines to help avoid the dreaded IRS audit.
Ditching your boxes full of business receipts for a more streamlined, organized approach to your tax returns — e.g., scanned, electronic receipts — may feel risky. After all, who wants to raise a red flag and chance an IRS audit?
The truth is that the IRS has allowed electronic tax records and receipts since 1997. Another truth is that you must adhere to IRS guidelines governing “electronic storage systems.”
Following these guidelines can help you tame that paper tax tiger, and maybe even recoup some time and productivity in the process.
What makes an electronic receipt valid in the eyes of the IRS? Each receipt must include the vendor’s name and address, transaction date and the amount paid. Also, be sure to note what you bought and its business purpose — just in case you face an audit later down the road.
Avoid procrastination. Enter your receipts and your notes as soon as you can after each expense. Relying on your memory is a poor substitute for timely documentation, and no defense at all in the event of an audit.
Regular, consistent and accurate data backup isn’t just good advice. It’s a requirement by the IRS if you want to use electronic records. Best practices include backing up data online and keeping an on-site backup on a secure external drive.
There may be times where the IRS requires its investigators to use printed copies. Make sure the receipts that you scan look clear and legible before you save them, and make sure that you can print hard copies if required.
While you can track your small business tax receipts using nothing more than a scanner and a spreadsheet, you might consider using one of a number of online services such as Lemon and OneReceipt. If you’re looking for reliable storage for those digitial tax receipts, consider Shoeboxed, Expensify, and Planet Receipt.
Lauren Simonds is the Managing Editor at Small Business Computing.