285: Receipt Management System Whether You Are Starting A Business Or Side Hustle, A Solopreneur, Entrepreneur, Mompreneur, Freelancer, Bookkeeper, Virtual Assistant, Business Owner, Or Self-Employed
285: Receipt Management System Whether You Are Starting A Business Or Side Hustle, A Solopreneur, Entrepreneur, Mompreneur, Freelancer, Bookkeeper, Virtual Assistant, Business Owner, Or Self-Employed
One of the most popular questions I receive throughout the year, and especially during tax season, is which receipts do I need to keep for my business, and the follow-up for this question is typically how I should keep these receipts. Both are great questions, and in today’s podcast episode, I go over which receipts you need to keep in your business as well as the best ways that my clients have found to keep these receipts so that they are able to find them easily. When I’m working with my clients, the overall goal is to ensure that whatever option they decide to use when maintaining their receipts, it is easy for them to do, and they are able to find the receipts when they need them. Whether you are starting a business or side hustle, you’re a self-employed individual, a solopreneur, entrepreneur, mompreneur, freelancer, small business owner, a remote, virtual, online, or in-house bookkeeper, or a virtual assistant or VA; knowing which receipts you need to keep for your business and how you are going to maintain a system for managing those receipts is pretty important if you want to be able to take the deductions for those expenses on your tax return. These tips are essential whether you are using a computerized software system like QuickBooks, Xero, Wave, FreshBooks, or HoneyBooks for your business finances; or doing your bookkeeping manually with an Excel spreadsheet or even a Google Document…
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Show Notes:
One of the most popular questions I receive throughout the year, and especially during tax season, is which receipts do I need to keep for my business, and the follow-up for this question is typically how I should keep these receipts. Both are great questions, and in today’s podcast episode, I go over which receipts you need to keep in your business as well as the best ways that my clients have found to keep these receipts so that they are able to find them easily. When I’m working with my clients, the overall goal is to ensure that whatever option they decide to use when maintaining their receipts, it is easy for them to do, and they are able to find the receipts when they need them. Whether you are starting a business or side hustle, you’re a self-employed individual, a solopreneur, entrepreneur, mompreneur, freelancer, small business owner, a remote, virtual, online, or in-house bookkeeper, or a virtual assistant or VA; knowing which receipts you need to keep for your business and how you are going to maintain a system for managing those receipts is pretty important if you want to be able to take the deductions for those expenses on your tax return. These tips are essential whether you are using a computerized software system like QuickBooks, Xero, Wave, FreshBooks, or HoneyBooks for your business finances; or doing your bookkeeping manually with an Excel spreadsheet or even a Google Document…
Welcome Back…When clients ask me which receipts they need to keep for their business, unfortunately, my answer back to them is that they should keep every receipt that they want to deduct for that expense on their tax return. The reason for this is that if there is ever an audit on your tax return, and the IRS asks for you to provide a copy of a specific receipt, you need to be able to give that receipt to show proof of the deduction. If you are unable to provide a receipt, there is a good chance that they will disallow the deduction, and you will be taxed on that amount. So, again, you only need to keep receipts for anything that you want to deduct on your tax return. I recommend that my clients keep all of their receipts. I’ve also had many clients who think that if they have a copy of their credit card statement that this statement will serve as a copy of their receipt, and that is not true. You need to keep copies of your receipts even if you are able to show the credit card charge on your credit card statement. I normally ask my clients to match their receipts to their credit card statements and keep their receipts with that credit card statement so that it is easy to find the credit card receipts from that statement.
Now that you know you need to keep all of your receipts, you might be asking what the best way is to keep all of those receipts so that you can manage your receipt system easily. Having a receipt management system for your business once you have the proper processes set up will not only help you organize your receipts, but once you have a smooth process in place, you will also find yourself saving time from struggling with how to decide to file your receipts, as well as saving you time when it comes to looking for them in case of an audit or simply when you may need to return an item. Even just a few extra minutes of time will add up over the course of a year, and who wouldn’t mind adding some spare time in their day?
You might be asking if it is better to save your receipts physically or electronically. The answer here really depends on what is easier for you. I have clients who are on their computers all day long, and it is easy for them to create an electronic version of their receipt management system, but others may not be in the office as much and don’t have access to a computer throughout the day. First, I want you to ask yourself how comfortable you would be with an electronic receipt management system. If you feel like this would be something you would struggle with, then I would recommend you continue to use a physical receipt management system. In this episode, I’ll cover a solution for both, and you can decide which would work best for you. Remember, if you choose one or the other, you can always make changes in the future and start using another system if your circumstances change and it would benefit you. Your main goal when deciding on which process will work best for you is to be consistent. You want to make sure you are following your process and that you capture all of your receipts. You could have an amazing process set up, but if you are never following it, you will have a disaster when it comes to finding receipts in the future. Be honest with yourself, and make sure you select an option that works best for you.
I will start by discussing the option of keeping your receipts with a physical receipt management system. Physical receipt management systems would be having an actual paper copy of your receipt to file for your records. I normally divide the physical receipt management systems into two options. One would be to keep your paper receipts by month, and the other is to keep your receipts by the vendor. When you keep your receipts by month, you would have a folder for each month of the year, and as you accumulate your receipts, you would file them in the month they are incurred. When you are done with the year, you will store that years’ worth of records so that they are available if or when you need to look back for any reason. I also recommend that when you are doing your monthly bank account reconciliations and closing out your month, you print out copies of your balance sheet and profit and loss report when you have all your transactions recorded if you are using a computerized software system such as QuickBooks, include your bank statements and any other relevant information for that month. If you have a bookkeeper helping you, you can ask them for these reports every month, and if you are doing your bookkeeping manually, you can include your bank statements and any reports you generate in that monthly file as well. Your goal here is to try to have all the information in one file per month so that you can quickly look back on it if necessary. You will have the proper documentation for any transaction that happens within that month, all within that one file. This will make it simple for you to look for any documentation you need as long as you know the date that the transaction was incurred.
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The second option for physical receipt management would be to keep a file by vendor name or an alphabetical vendor filing system. In this method, you could start with a folder for each letter of the alphabet and start filing your receipts in the appropriate folder. If you find you are using a specific vendor multiple times a year, you may want to have a file set up just for that vendor. You would set this system up to encompass one year’s worth of information as well, and when the year is over, you will start with a new set of folders to keep your receipts in. When you file your receipts in this manner, it is still important to keep your financial reports by month, so you may also want to have a separate folder to store these reports. Your goal with this system again is to be able to file your receipts quickly, and when needed, you will be able to locate your receipts by finding the folder that would contain the appropriate vendor. One key thing to remember with these physical options is to ensure you have a copy of your receipts. So, when you are asked when making a purchase, would you like a receipt? You need to say yes. If there isn’t an option to get a printed receipt at the time of purchase, make sure you have your receipt emailed or capture a photo of the receipt that you can print at a later time to get into your receipt management system. I know this is hard to do since not all vendors ask if you even want a receipt, but most times, when you ask for the receipt, they should be able to provide it to you, and this will be your responsibility to make sure you get a copy for your files.
Ok, now that we covered how to handle your physical receipt management, I will cover how you can do this electronically. Very similar to how the physical receipt management system worked, you will be able to replicate this electronically. You can purchase receipt management software if you are interested, but I normally tell my clients this is something you can do right on your computer without having to purchase any software, but you will need to have a good scanner, and you will want to make sure when you scan any receipts that you are able to read the entire receipt. I recommend you make a separate file on your computer and call it something like receipt management files or something similar so that you will know how to find it. Once you have this folder set up on your computer, you will then want to set up a separate folder for each year you are doing your electronic receipt management. This will help you to find your receipts easily as long as you know which year they were incurred. Next, you have a couple of options. Again, much like the physical receipt management system, you can set up folders within the year by month, or you can set them up alphabetically so you can save your receipts by the vendor. It doesn’t matter which direction you go, but you do want to be consistent to help you create a sound filing system. Once you have the folders set up on your computer, you will scan your receipt and save them to the appropriate folder, either by date or by the vendor. When you save them, I would recommend saving the document with the vendor’s name and the date of purchase as the file name. It may also be helpful to include the dollar amount in the file name. This, again, will make it easy for you to find your receipt without having to open a million documents looking for a specific receipt. Once you have the vendor’s name, the date, and the amount, you should be able to find your receipts fairly quickly. I also recommend that you save a copy of your financial statements and your bank statements electronically if you are using an electronic receipt management system. It is just nice to have all your documents readily available in the receipt management system you choose. You can do this by scanning your documents and saving them in a file in the year you are saving all your receipts. One last thing regarding the electronic receipt management system. Make sure that you have a good system set up for backing up your files. If this is the only record you have of your files, you don’t want to lose them if you happen to have a virus or your computer crashes.
No matter which receipt management solution you are using, it is beneficial to make a note on each receipt so that you are able to remember exactly what the receipt was for. Make sure you do this before scanning your receipt if you are using the electronic receipt management system so that your notes show up on your scanned receipt. These notes will be especially important if it is a meal or entertainment expense, as well as anything that is out of the ordinary. If it is a meal or entertainment expense, you should note who you were with as well as the reason you incurred the expense or the business purpose.
Now that you have a system in place for your receipt management, you should notice a time savings, and your stress levels will hopefully be lower. I always try to find solutions for my clients to save time and reduce stress and overwhelm.
And, you know I’m going to ask…what’s at least one thing you will take away from this episode that will help your business succeed and grow your bottom line? If you need some accountability, join our PRIVATE Facebook community and post your action item, we’d love to support you.
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