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How to Organize Receipts: 10 Tips to Simplify for Tax Time

January 13, 2017

Whenever the new year comes around, a little alarm bell goes off in the back of our heads: taxes are coming! The best part of taxes is making deductions, so it’s time to break out those receipts. Receipts are always troublesome to manage (taxing, if you will), so here’s a quick review of the basics, and some low- and high-tech recommendations, to help you organize receipts like a pro.

Before we get started, keep in mind that you only need to keep receipts if you’re going to itemize deductions. The majority of households – 68.5% of returns in 2013 – opt for the standard deductions of $6,300 for individuals and $12,600 for married couples filing jointly. If your deductible expenses for the year fall below those sums, don’t bother with receipts. But every penny your deductible expenses climb above those marks is money you’re walking away from.

Start by knowing which receipts are worth saving

How to Organize Receipts Tip 1: Don’t File Your Recycling

Not all receipts are tax-deductible, and if you avoid the work of separating the deductible receipts up front, you’re only creating clutter that makes it harder to work with your receipts come tax time. Here’s a list of popular deductions to consider.

How to Organize Receipts Tip 2: Ignore the $75 Rule

If you’ve heard about this convenient loophole, your best move is to purge it from your mind. According to Publication 463, receipts for deductible expenses under $75 aren’t necessary. Unfortunately, this only applies to entertainment, overnight travel, and listed property expenses. Plus, you’ll still need evidence to establish who paid for them and how. So just keep the receipts.

Now that you’re only keeping what you need, make sure everything is recorded legitimately.

The basic requirements of receipt documentation

How to Organize Receipts Tip 3: The Burden of Proof is On You

If you get audited, you’ll need to prove both that each deducted expense occurred and that you paid for it (and how). You can do this by simply matching physical (or digital) receipts to your bank statements, but it’ll help you big time if you keep a log of expense details (who attended the business dinner, etc.) along the way.

How to Organize Receipts Tip 4: Don’t Assume You’ll Remember the Details

When claiming client dinners as business expenses, you’ll need to provide the particulars – what’s the business purpose of the dinner? Who was there, and which organizations did they represent? The easiest way to handle this: write it down on the receipt!

How to Organize Receipts Tip 5: Keep Physical Copies

Is this strictly necessary? No. But while digital receipt management is preferable to many of us, it is only accepted by the IRS when it complies with the labyrinthine legalese of Revenue Proclamation 97-22, which requires an indexing system to prevent alteration or deletion of information.

How to Organize Receipts Tip 6: Three-Year Statute of Limitations

In most cases, you can get rid of receipts three years after the corresponding filing year. However, if you don’t file taxes on a given year, you’ll need to keep those receipts indefinitely – the IRS statutes of limitation only apply if you file.

Best practices for storing and managing physical receipts

How to Organize Receipts Tip 7: Where to Keep Them?

This is the unsexy essence of receipt management. If you go with file folders, subdivide and conquer. Dealing with a year’s worth of jumbled receipts is even less fun than it sounds – separate receipts by month or category to help you make sense of them down the road. If you don’t trust yourself to do any work, go with the box method. It’s just what it sounds like – toss your receipts in a box. (Not recommended if you accumulate more than one receipt per week.) The best method is a small notebook. It’s uncluttered and captures relevant details along the way. Simply tape in one receipt per page and jot down relevant information (why it’s a business expense, payment source, etc.) alongside.

How to Organize Receipts Tip 8: A Little Legwork Now Goes a Long Way Later

Regardless of where you store receipts, consider tabulating the data periodically throughout the year. If you transfer each month’s receipts to a spreadsheet and add up expense categories, the work of itemizing deductions will fly by when tax time comes around.

At some point, physical receipts will be obsolete. We can’t walk away from them yet, but that doesn’t stop you from taking advantage of digital tools and services that save time and keep you at ease.

Digital tools that make it easier

How to Organize Receipts Tip 9: Use a Smartphone Scanner

There are a mountain of scanner apps to choose from, both free and paid. Receipts by Wave is free to use and robust – you can log your receipts in the cloud by scanning them in-app (iOS and Android) or forwarding email receipts to Wave.

How to Organize Receipts Tip 10: Get Some Light Accounting Assistance

Skip the slog of manual entries altogether by sending your business documents (receipts, business cards, etc.) in-app or postage-free to Shoeboxed. The service transforms them into IRS-accepted images and integrates with common platforms like Evernote and QuickBooks. Expense reports have never been easier to file from the road, and plans start at $9.99/month.

How to Organize Receipts Tip 10: Depend on Old-School Security

Not everyone wants their information in the cloud. Those who prefer their digital records stored locally can get an affordable scanner or digital camera and store images on a hard drive or disc. Just make sure they’re backed up! The IRS won’t shed any tears over your lost data.

Merry Itemizing and a Happy New Year!

Few among us love filing our taxes, but maximizing deductions by keeping unassailable records makes it all better. With your own manageable system for storing receipts and a basic understanding of which receipts to keep and how, you’ll be sure to maximize your deductions year after year.