Maximize Your Tax Returns by Saving Your Receipts

Spring Cleaning? Maximize Your Tax Returns by Saving Your Work-Related Receipts and Documents

If you hate clutter, throwing away your receipts seems like the natural thing to do. Even people who aren’t as concerned with tidiness often toss their receipts in the nearest wastebasket as a matter of habit. And if you’re in the mood for spring cleaning, it’s easy to trash receipts and documents without examining them carefully or considering their importance.

Unfortunately, this practice can have negative consequences when it comes time to file your taxes. An organized and complete paper trail of your expenses can ensure that your tax return is accurate, and you get the refund you deserve. As you go about your spring cleaning this year, be sure to gather all of your receipts and review them fully.

Keep reading to learn why saving your receipts is so important and how a neat and orderly accounting of your payments can maximize your tax returns.

Why Should I Save My Receipts?

Whether you itemize or use a standard deduction, saving your receipts will directly influence your taxes. Many people claim work-related expenses on their tax returns, even though they cannot provide evidence of those payments. If the IRS audits them, they could potentially be subject to penalties, fines, and even potential criminal charges if they can’t prove their spending.

Maintaining a good accounting of your expenses is essential for small-business owners, contract employees, and even traditional part- and full-time employees. Whether you itemize or use a standard deduction, saving your receipts will directly influence your taxes. Many people claim work-related expenses on their tax returns, even though they cannot provide evidence of those payments. As of 2019, W2 employees are no longer allowed unreimbursed employee expenses, but they may be available for back tax filings prior to Tax Year 2019.

Here’s a list of common receipts and financial documents to track and manage for the different employee types listed above.

Self-Employed Taxpayers

Self-employed individuals should keep detailed records for tax purposes to verify anything they claim or report on their taxes. Having these records in good order will keep your tax returns accurate and easy to file.

Depending on your business or occupation, self-employed individuals should maintain all:

  • Credit/debit card slips
  • Purchase/sales invoices
  • Canceled checks
  • Sales slips
  • Bank deposit slips
  • Account and financial statements
  • Previous tax returns
  • Any documentation detailing depreciation and casualty losses

The IRS often audits the previous seven years of a taxpayers’ financial history, so be sure to hang on to these work-related receipts and documents for at least that long.

Small Business Owners

Like self-employed individuals, small business owners must diligently keep records of their work-related documents and expenses. Unfortunately, many of these proprietors aren’t sure which of these records to keep.

Depending on your type of small business, you should maintain all:

  • Bank statements
  • Payroll records
  • Invoices
  • Signed contracts with clients, vendors, or contractors
  • Receipts
  • Cash register tapes
  • Credit/debit card slips
  • Previous tax returns
  • Cancelled checks

You’ll notice that this list is a little lengthier than the one above, but that’s because small business owners typically have to keep track of a lot of paperwork with limited human resources. So be sure to keep as many records as you can to remain in good standing with the IRS.

Traditional Employees

Before Tax Year 2019, traveling, entertaining, and dining were the three most common business expenses for traditional employees. However, W2 employees can no longer claim their unreimbursed employee expenses on thier taxes– and entertainment expenses are no longer deductible. Whenever you incured a work-related expense, you should have documented the following.

  • Date: Document the date of the expense.
  • Amount: Detail how much you spent — including tax and tip.
  • Place or location: Record the establishment where you spent your work-related dollars.
  • Purpose: You must prove that the expense was work-related, so provide commentary on the business reason for any money spent.
  • Business relationship: Show that the purpose of the expense was related to your business. Consider listing the name, title, and company of the party you hosted or visited.

RELATED: Get Ready to File Your Tax Return With These Simple Tips

How to Save and Organize Your Work-Related Receipts

Every spring, millions of Americans scour their houses looking for receipts to help improve their tax standing. However, if you develop a strict system for keeping track of all of your financial transactions, you’ll be far more confident when it comes time to file your returns.

Here are four proven tips for saving and organizing your work-related receipts.

1. Eliminate Bad Habits

This first piece of advice might seem obvious, but you’d be surprised how many hard-working Americans either consciously throw away their receipts or fail to keep track of them. Use specific folders to keep track of all of your work-related receipts and documents and add each new record every single time you incur a business expense.

2. Pay Attention to the Details

As you preserve your financial documentation, be sure to segment these records into individual folders that reflect the type, month, and location of the transaction. By organizing your paperwork into neat stacks according to each trip or engagement, you’ll be better prepared to easily find each expense when it’s time to officially document them with the IRS.

3. Designate a Secure Storage Space

No matter how impeccably you organize your records, it’s pointless if you cannot find them. Whether you store all of your work-related receipts and documents in a drawer, box, or another space, make sure that it’s secure and accessible.

4. Digitize Your Records in a Spreadsheet

While you should keep all of your work-related financial documents in a safe location, it’s also a good idea to track these expenses digitally. Create and back-up a spreadsheet itemizing all of your business payments and add links or attachments to images of the document to be sure that you have what you need when you need it. Store this information on a safe, cloud-based platform to be 100% confident that you have unrestricted access to your critical records.

During an Audit, Your Receipts May Not Be Enough

If the IRS decides to audit your tax returns, it will ask for significant information that substantiates your expenses. A receipt alone may not be enough during an audit. For example, say you go to a big-box store and save the receipt. The receipt lists most of your items as “general merchandise” and details each item’s price. During an audit, how would you prove that you purchased reams of paper, printer cartridges, and other necessary office supplies? This also applies to travel-related expenses, especially those for meals.

In addition to saving your receipts, you should keep detailed databases that outline:

  • The date and location of the purchase
  • Item or services purchased
  • Each item or service’s business purpose
  • Proof that your business paid for the expense, such as cancelled checks or credit card statements

If you need help compiling and organizing your tax records, contact our office. We can also guide you through a tax audit, if the IRS or Comptroller decides to review and investigate your returns.

S.H. Block Tax Services Is Here to Help With All of Your Tax Needs

Whether you’re a small-business owner, independent contractor, or traditional employee, you should always track and record your business transactions.

At S.H. Block Tax Services, we have the skill and experience taxpayers need to file accurate, timely, and complete tax returns in accordance with the ever-changing tax code. And if you need help or advice in tracking down important receipts or other financial documents, we’re here to help.

If you’d like to learn more about our firm and how we can help with any tax issues or liabilities you have, please contact us today by calling (410) 727-6006 or completing this brief form.

 

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