These Are the Receipts To Keep for Doing Your Taxes
Gathering and saving receipts and tax documents is an important part of filing taxes and receiving your refund quickly. Whether you take the standard deduction or itemize deductions, most people filing their 2019 taxes in 2020 will be happy they took the time to prepare when the IRS deadline rolls around.
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Review which receipts to keep for taxes — the information below will help to make tax preparation less painful and ensure you take all of your eligible deductions.
What Receipts Should I Keep for Taxes?
In the event that you’re not sure how to file receipts for taxes, consider seeking the help of a tax professional. They can not only tell you what receipts to keep for taxes, but they can also assist taxpayers with complex financial situations and can help with calculating all types of taxes. Concerning the money you receive back, this could also help protect any tax refund. It might even give you a large refund to spend. But rather than focusing on how to spend or what not to do with a refund, a tax expert can use receipts to help you avoid needing a refund in the first place.
Whichever route you take, make sure you know how to save and organize receipts for taxes — the last thing you want is to not have the documents you need to defend yourself during an IRS audit.
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Small-Business Owner Receipts
Self-employed individuals should consider using QuickBooks or similar accounting software, according to Bonnie Lee, an enrolled agent and owner of Taxpertise in Sonoma, California.
“The scope of an audit of a small business is reduced considerably when the auditor discovers that adequate books and records, checkbook reconciliation and all other bookkeeping tasks are being performed on professional software by a professional accountant,” said Lee.
A small business owner wondering what receipts to keep for taxes should make sure to save these documents:
Sales slips
Paid bills
Invoices
Receipts
Deposit slips
Canceled checks
Keep your gross receipts because they show the income for your business, which you must include when you file your taxes. Gross receipts to save for taxes can include:
Cash register tapes
Deposit information
Receipt books
Invoices
Form 1099-MISC
Don’t forget to save your receipts for business purchases, which are classified as the things you buy and resell to consumers. Save these purchase documents and receipts:
Canceled checks or receipts that show the payee, amount and proof of payment
Cash register tape receipts
Credit card receipts and statements
Invoices
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Business Expense Receipts
Your expenses are the costs of running your business, other than your purchases. Take some expert advice on what receipts to keep for business taxes.
Sometimes canceled checks are not enough to support a deduction, according to Lee. “A check made out to Costco is not proof of a business expense because you could be buying groceries and other personal items. Credit card charges for a business trip to Maui will smell like a vacation unless you can provide other documentation to support the business purpose. So be sure to keep the receipts, business conference flyers, etc. to defend business usage,” said Lee.
Keep these expense receipts for taxes:
Canceled checks
Cash register tapes
Account statements
Credit card receipts and statements
Petty cash slips
Invoices
Keep all of your credit card receipts and statements, invoices and cash register receipts. You’ll need them to maximize your tax deductions for eligible transportation, gift and travel expenses.
When you sell any business assets — such as the real estate, furniture or machinery you use — you’ll need to keep the purchase and sales agreements as well as your receipts. You’ll also need the purchase receipts if you use depreciation on your business assets as tax write-offs.
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Tax Receipts To Keep
When asking yourself, “What receipts I should keep for taxes?” you should know that business owners and sole proprietors aren’t the only ones who should be keeping receipts. Many taxpayers qualify for common eligible deductions that could require proof in the form of a receipt.
Keep these documents as well:
Receipts for contributions to a traditional individual retirement account
Supporting documents or receipts for worthless securities or bad debts if you write these off as losses
Receipts for payments made to household employees
Receipts to prove you qualify for any special tax benefits you claim, such as an educator expense deduction
Supporting receipts and documents for eligible home improvement costs on real estate
Any documents that prove your cost basis for inherited or gift property
Receipts for medical expenses and dental costs — medical receipts for taxes can include payments for doctors, hospital stays and prescriptions not covered by your health insurance
Receipts for costs related to medical expenses — these expenses can include the costs of ambulance rides and spending associated with traveling to and from medical appointments, including parking and tolls
Documentation showing tax-deductible donations totaling more than $250, only for charitable donations that exceed $250
Receipts for dependent care expenses if you’re a working parent
Student loan interest receipts
Energy-saving home improvement receipts
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How To Organize Receipts for Taxes
Whether you expect to pay taxes or get a refund, keeping receipts for taxes doesn’t need to become a complicated process for managing taxable income. Nor should it affect the number of tax loopholes utilized. The key is knowing how to save receipts for taxes and filing them in an orderly fashion.
Maintain paperless records by scanning receipts and records, or use an app like Expensify to photograph receipts with your smartphone and categorize them. Doing this will simplify the process of listing your itemized deductions when you fill out your income tax return. Alternatively, save your receipts in boxes or files if you prefer a more traditional route.
You can also find a ready-made receipt organizer or even use your tech savvy to operate a receipt scanner. No matter which tax receipt organization style suits you, arrange your documents by year and category.
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How Long To Keep Tax Records and Receipts
You should save general tax records for at least three years, according to Josh Zimmelman, owner of Westwood Tax & Consulting LLC in Rockville Centre, N.Y. “The IRS has three years to ask for an audit,” said Zimmelman. “But they can ask for records up to six years after filing if you failed to report 25 percent or more of your gross income.”
Another expert, Deltrease Hart-Anderson, an enrolled agent in West Columbia, S.C., gave an alternative perspective. “I tell both business and individual clients to save receipts for at least 10 years, but I add a disclaimer: If you have room, save them forever,” said Hart-Anderson. The IRS can audit an indefinite number of years of your tax returns if feels that you’ve filed a fraudulent tax return.
Receipts can help you maximize your refund, or at least minimize your tax burden. But when it comes to collecting and keeping tax records and receipts, the guidance of a tax professional or financial advisor remains the safest bet. Not only will you receive advice best suited for your tax situation, but you can also stay focused on the arduous but profitable task of receipt record maintenance.
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Will Healy contributed to the reporting for this article.
Last updated: Jan. 25, 2021
This article originally appeared on GOBankingRates.com: These Are the Receipts To Keep for Doing Your Taxes
