By now we've probably all heard about the increased funding being provided to the IRS. And while there is a lot up in the air as to how that will play out for taxpayers, one thing is for sure: additional staffing at the agency will likely mean an increased audit risk. More people working at the IRS gives it more manpower to review and audit taxpayers to confirm that the numbers on the filings are legit. And even if it turns out that you didn't do anything wrong, the process can feel pretty brutal. There are a few ways to keep organize in case this comes up for you, and today we'll focus on receipts.
Our general policy for receipts has been, we don't need them to file your taxes, but you should have them on hand in case the IRS asks. Which is still true. But now I want to impress upon you the importance of actually doing it, as well as some tips on how.
In the event of an audit, the IRS will not accept bank and credit card statements as proof of what was paid for. Yes, it proves that you did incur the expense, but it does not show on what in order to confirm that the amount is deductible. This is why it's even more important than ever that you have receipts to reflect exactly what was expensed, and there are a few ways to do this:
1. Digital Storage: The easiest and most cost efficient way to save receipts is to take a picture or scan them to your online storage software of choice; think Dropbox, Google Drive and the like. You'll want to organize them so that they're easy to find, either making sub-folders by period (i.e. MMYYY) or category (i.e. Advertising, Office Supplies, etc). Then make sure to label them so that it's easy to know what they are - a common naming convention includes:
The vendor or expense type,
Date incurred, and
Example of a naming convention that sorts nicely by date is YYYY-MM-DD Type Vendor Amount.
2.Upload to software: Of course, there's an app for that 🙂 Each requires a monthly fee, but the benefit is that they will typically scan them and organize them for you, and many have integrations that will add them directly to your accounting system so that they are connected to the corresponding expense, giving an even greater level of insight to your financials. A couple of options to consider are:
3. Upload directly to your accounting system: Quickbooks allows you to use the app on your phone to take a picture of your receipt to attach it directly to your expenses. The con to this is that you need to categorize by expense, meaning you're starting with a list of transactions, rather than uploading directly to a portal. You can download the QBO app here.
If you have electronic receipts (i.e. recurring software or online orders), even better! Save those using one of the methods above so that they can be included with any scanned documents so that you aren't searching through your email later.
We don't know what will come of the increase in hiring at the IRS, but safe to say that part of the point is to have more eyes on taxpayer data to review with more scrutiny. In the event you are selected for an audit or review, you can make your life a little easier by having documents organized and on hand to provide as evidence that you spent appropriately.