Business Receipts: Why and how you need to file them for your creative business
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There is the long running joke about the business owner who "files" their receipts in a shoebox. We laugh about it, but while technology is continuing to automate business some entrepreneurs still stash receipts to worry about later.
What I find far more common among online entrepreneurs is not gathering receipts at all.
Why is this the case? Online entrepreneurs have a lot of online expenses and some of these online providers don't send receipts out. That means the already swamped entrepreneur has to go sign into all of their accounts and manually pull these receipts and save them or in most cases they just don't do it all.
Why do I need to keep receipts?
Everyone knows we need to keep business receipts, well almost everyone. I've met a few entrepreneurs who had no idea this was even a thing.
So why is it such a necessary evil? Well here's the thing, you know how you get to count business expenses a tax deductions? The IRS wants proof. Without proof that you actually spent that money on those expenses, who is to say that you didn't pocket that money and take the deduction too?
Now here's where it gets fuzzy.
Some people ask why they can't just use their bank statements as proof of purchases.
This might work, but there are some grey areas here.
There is one glaring difference between a statement and an actual receipt - details of your purchase. Not only do you need to prove that the money was spent, you also need to prove it was spent on what you say it was.
Let's say you are audited and asked to furnish receipts. You send you bank statement instead. You purchased furniture for your office at Ikea and a printer at Best Buy. When the auditors look at your statement, all they can tell is that you did indeed spend business money at Ikea & Best Buy. But because there are sneaky people out there who try to work the system, they have to be thorough. How do they know you didn't buy a new lounge chair and bedding at Ikea or movies and a game at Best Buy? They don't!
What this means for you?
Not only would you be responsible for those taxes, you could also be fined.
So now knowing why we need to keep them,
let's talk about ways to keep them organized so we don't pull our hair out or get fired by our accountant.
There are a few options and old school paper filing isn't one of them. As an online entrepreneur it isn't really a good option for you anyway since most of your expenses are paid online and come with a digital receipt.
1. Manually File Digital Receipts
Google Drive works wonderful full this...and you know it's super cheap to free! If you only have a few expenses each month, probably 10 or less, this might be a good option for you. Of course, this does take time, so if your time is more important to you, you can either have a VA do this for you or skip to the next option.
Create a list of your monthly expenses to make sure you don't miss any. Oh look I've got a download for you right here :) Just save and fill it in!
Either save a copy of the receipt or take a screenshot of the receipts. File the receipts in the current month folder with the date and vendor.
2. Use HubDoc
HubDoc is an automated option. You connect your accounts and HubDoc will pull every receipt it can find in your accounts. Voila! That's all you have to do.
There is also an app you can use to take pictures of physical receipts or you can simply upload them on the computer into the platform.
You can also connect your bank accounts and HubDoc will pull bank statements and any other important bank documents like checks you've written and deposit slips. This feature is why I have HubDoc as part of my base package. No back and forth with your bookkeeper or accountant.
One final note
For meals and entertainment, do yourself a favor and write directly on the receipt before snapping a picture, who you were with and why it was business related. This will save you in the long run if you are ever audited!
Tell me in the comments
What is your process for collecting and filing receipts? Do you use software, have your VA do it, or do it yourself?