Every time you make a purchase, you should receive some form of receipt. It could be a digital receipt sent to your email, or it could be printed at a register upon purchase. Businesses and individuals alike can quickly find themselves with thousands of receipts. So what is exactly a tax receipt?
The receipts not only help to prove a purchase was made, but they also help calculate any tax deductions. For that reason, it is incredibly important that you organize all of your tax receipts with care.
If you want to know more about tax receipts, business receipts, and the ones you must store, then keep reading. In this guide, you will find everything you need to know.
Defining a Tax Receipt
You might find yourself asking, “what is tax receipt versus regular receipt.” We know that putting the word tax in front of anything makes it more daunting. However, a tax receipt is simply a receipt that you need to collect for tax purposes.
Evidence for Audit
Tax receipts serve as evidence for expenses that you claim on your state and federal income tax returns. You can’t just say you made a purchase without having any record of it. In the event of an audit, you have to provide receipts for purchases that you deducted taxes. Otherwise, you could find yourself in major trouble with the IRS.
Calculating Income Tax
Tax receipts aren’t just for audits. They also help you to accurately calculate the amount of money your business owes for your state and federal tax. Many people and businesses can get deductions for things such as health care, office supplies, and mortgages. If you don’t keep your receipts, you could very well forget about an important deduction.
Business Tax Receipts
If you own a business, then knowing the definition of business tax receipts is all the more important. Businesses of all types and sizes tend to have more deduction opportunities than individuals. From office rent and payroll to office supplies and travel, you can have a wide range of expenses each tax year.
The IRS considers a business tax receipt to be any document that proves an expenditure. Therefore, you need to keep any receipts that show a purchase you plan to deduct from your state and federal income tax.
What is a Gross Receipts Tax?
You must not confuse a business tax receipt with a gross receipts tax. The two items are very different from one another. A gross receipts tax can sometimes be referred to as a gross excise tax. No matter what you call it, it is a tax on your company’s total gross revenues. Your business must pay the tax on revenue regardless of its source, and you can’t use any deductions.
Gross receipts taxes are very similar to a state sales tax. However, the business is responsible for the tax instead of the consumer. It’s important to note that, like sales tax, every state has different policies on gross receipt tax. Many states don’t have it at all. You need to research the specific tax laws for the state you live in or operate your business in.
Receipts You Need to Keep for Your Income Taxes
As we mentioned before, tax receipts determine the amount of income tax your business must pay. For that reason, you need to keep receipts from any purchase you plan to deduct. The following are just a few of the main tax categories in which you may have expenses.
Anytime you pay for something that you consider inventory, keep the receipt. Whether you buy materials to make goods or sell the inventory directly to consumers, the IRS considers it an inventory purchase. Since you can deduct money you spend on your inventory, each tax receipt helps calculate your income tax.
The IRS defines assets as property you purchase to use for your business. The type of assets you own could vary from those of another company. For example, a restaurant would have very different assets from a farmer. Where the restaurant invests in stoves, dishes, and furniture, the farmer may invest in heavy equipment, livestock, and technology. Even though the items are so different, they are all considered assets.
The way you deduct an asset can also vary. If you have a low-cost item with a short lifespan, you may deduct it from the current tax year. However, the state and federal governments have depreciation rules for big-ticket assets. If you expect an expensive item, like a tractor, to last for several years, then you may have to depreciate it each year.
Do you pay to have commercials aired on the radio? Have your printed flyers to hang up around town? Regardless of how big or small your advertising budget may be, you need to hold on to your receipts. A tax receipt for advertising should show any purchase you made to promote your business. Popular advertising expenses include:
- Magazine Ads
- Facebook Ads
- Newspaper Ads
- Web Hosting
- Business Cards
- Email Campaigns
- TV Commercials
Each time you purchase a set of staples, paper, toner, pens, or any other office supplies, keep the tax receipt. No matter how small the amount on one receipt may be, they can quickly add up by the end of the year.
Office supplies tend to be one of the more challenging categories of receipts to organize. You could have purchases coming in from several different employees, and they could occur multiple times a week. It’s easy to lose track of a few along the way.
Since some employees may make small office supply purchases with petty cash, keeping the tax receipt is all the more important. Without it, you won’t have any other record to prove the amount, date, or item of the purchase.
Anytime you make a payment for a hotel stay, airplane tickets, or rental cars, you should store the tax receipt. To clarify, the travel must be strictly business-related. Unfortunately, your family’s trip to Florida isn’t a tax deduction. However, some businesses frequently send employees all over the world for conferences, business meetings, and education. When you do, you can use the receipt to deduct your taxable income.
In addition to deducting payroll expenses, you can also deduct the cost of hiring independent contractors. In most cases, you will be required to issue 1099, but you shouldn’t rely on that as proof of payment. Instead, we recommend that you keep any invoice until you receive a receipt. Once you get your tax receipt, you can use that as proof of payment for any freelance professionals or contractors.
While a vehicle purchase falls under assets you need to depreciate, you can deduct several other vehicle expenses from your income taxes. For example, fuel and maintenance costs may be deducted in many cases. However, they must be for company vehicles. It is harder to deduct expenses for your personal car. You must prove the cost occurred as a result of using your car for your business. If you do choose to deduct the fuel expense, you should retain the tax receipt.
If you’ve made any charitable donations to non-profit organizations, you can deduct those expenses from your income taxes. You must request a receipt from the organization if one isn’t provided.
Those aren’t the only expenses your business may have. In fact, there are several other items that could require you to retain the tax receipt. We recommend that you speak with your accountant or tax professional to find out what expenses apply to your business.
How Long to Keep Your Tax Receipts
Before you go to throw out a tax receipt from the previous year, look at federal guidelines. The IRS recommends that you keep all of your tax records and related receipts for at least three years. Otherwise, you could find yourself without evidence if an audit occurs in the future.
In some instances, you may have to keep a tax receipt longer than that. The IRS suggests that you keep documents for seven years if you filed a claim for loss. The loss deduction must be either from worthless securities or bad debt.
Keep Track of Your Business Tax Receipts
If you struggle to store every receipt, you’re not alone. Many people put off organizing their receipts until it is time to file their income taxes. Fortunately, you don’t have to let your business miss out on a valuable deduction ever again. With Wellybox copyright, all rights reserved, it’s easier than ever.
When you sign up for our services, you can scan every available business email for receipts. You can even use our app to digitize paper receipts so that you can keep them all in one place. With additional features like expense reporting and accounting software integration, Wellybox is a great tool for any business. Sign up today to get started for free!