Business receipts: How to keep them, and for how long

What are business receipts?

Business receipts and/or email receipts are two names for the same thing. These are written records that serve as proof of a financial transaction between a company and its customers or suppliers. They typically include the date, amount, business name, and purchase description.

While different kinds of company receipts may have different names, they’re all equally important. You’ll want to keep track of them to be able to prove income and expenses when tax time comes. There are several types of business receipts. Some of the most popular include:

• Sales receipts: Issued to customers as proof of payment for goods or services purchased from a business. The business should keep a copy too.

• Purchase receipts: Received by a business when it buys goods or services from suppliers or vendors.

• Expense receipts: Issued when a business incurs expenses, such as office supplies, web design, business lunch, travel, or any other time you spend money as a cost of doing business.

• Payment receipts: Issued to a customer when a business receives payment from a customer or client.

• Refund receipts: Issued when a business refunds money to a customer for a returned product or canceled service.

The importance of business receipts

The importance of business receipts cannot be overstated. Evaluating business performance typically starts with reviewing receipts. Company receipts are instrumental in maintaining accurate financial records, managing expenses, building a profit and loss statement, and ensuring compliance with tax laws.

Here are some reasons why business receipts are important:

• Budgeting and accounting: A receipt provides a documented record of a financial transaction, which is essential for bookkeeping, accounting, and legitimizing your income when it comes time to do your taxes.

• Expense tracking: These receipts help businesses track their expenses, which is necessary for budgeting and managing cash flow.

• Taxes and audits: Receipts serve as evidence of financial transactions and can be used to defend against any potential discrepancies or inaccuracies in business financial records during an audit.

• Refunds and returns: Receipts are necessary for processing refunds and returns, and they help businesses keep track of inventory and sales.

• Customer service: Receipts provide proof of purchase for customers and service providers, which can help resolve any disputes or issues with a purchase or payment.

Learn more about why it’s helpful to track expenses and business performance.

How long should you keep business receipts?

Per IRS guidelines, how long to keep business receipts depends on several factors, including the type of transaction, the industry, and the relevant tax laws and regulations.

Businesses should generally keep tax-related receipts for three to seven years. For example, the IRS recommends keeping tax-related receipts for at least three years after the date of the tax return, while some states require businesses to keep them for up to seven years.

This is all based on what the IRS considers the period of limitations, or period of time that you can still amend your tax return to claim a credit or refund, or that the IRS may come back to reconsider your return. You’ll want to hold onto your receipts for the period of limitation. In most cases, that’s three years, but if you try to file a claim for a loss or a bad debt deduction, you’re going to want to keep business receipts for at least seven years.

Keep in mind that even though the IRS has these rules set up now, laws and regulations could change over time.

If you open a PayPal business account, it’s a great way to keep all your business transactions in one easily accessible place. Keep the paper records too, but a digital source lets you access that data forever.

Which records you should keep

There are many types of records and receipts you should collect, organize, and store. The IRS recommends keeping the following records:

• Gross receipts: These are all the proceeds you take in over the course of a given tax year. That’s all your sales and you do not take any of your costs or expenses into consideration here.

• Purchase receipts: The purchase receipts you keep are records of when you pay for goods and services for your business. Your customers also get their own purchase receipts when they buy things from you.

• Expense receipts: Your expenses are when you spend money on behalf of your business. They could be those related to travel, local transportation, entertainment, or gift expenses, among other things.

• Records of assets: This is when you keep a register of the equipment you keep for your business. These might be computers, machinery, or other electronics. You keep this information to keep track of the price, depreciation, and current value of each asset.

• Employment tax records: These are all the tax forms you submit in any given tax year. Try to keep these in a safe place for as long as you can.

It's important to keep these records organized and easily accessible for at least the minimum amount of time required by law. It’s probably best to keep all documents together and organized by tax year.

Keeping up-to-date records will not only help you stay compliant with legal requirements but will also give you valuable insights into your operation’s financial performance, which can help you know your business, and grow your business. Learn more about what kinds of records you should keep.

Best way to store and organize receipts

Storing receipts in a secure and organized way can help you avoid lost or misplaced records and make it easy to find and retrieve them when needed. Here are some tips to keep in mind when storing and organizing receipts and records.

How to categorize receipts

Organize receipts by category. At the bare minimum, organize them into sales, expenses, and taxes, to make it easier to find specific receipts in the future. You will want to categorize receipts for taxes to protect your small business. But if you can be even more granular, try to split payment receipts from refund receipts, and purchase receipts from expense receipts.

Choose a method of storing receipts

Whether you use physical filing cabinets, electronic storage solutions, a receipt-scanning app, or accounting software, choose a consistent method of receipt storage and organization that you can maintain over time.

Label records clearly

Make sure each receipt or record is clearly labeled with the date of the transaction, the vendor or customer name, the amount, and relevant notes about the transaction.

Keep digital copies

No matter what storage method you choose, consider scanning paper receipts and storing them in a digital folder on your computer or cloud-based storage.

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