I come from a very long line of accountants. In addition, I have a close family friend that is an IRS auditor. (Yes, he does have a pocket protector and calculator at his side all the time. No, he doesn’t have a sense of humor that he is aware of.) Because of that, I was schooled very early in my adulthood about storing receipts for tax purposes. The bane of the tax accountant and IRS agent is the shoebox storage method:*
Now, most people will take what is called “the standard deduction” and won’t need receipts. However, many of us who work freelance or have their own (very, very small in my case) small businesses need these receipts like cats need to sit in your windowsill. If you’re one of those people who needs receipts, read on.
Many people throw their receipts in a shoebox and at the end of the year, they have a tangled mess to either hand to their tax accountant or go through themselves when they’re doing their own taxes. This method not only wastes time, but potentially can waste money OR get you in trouble with the IRS by either deducting too little or too much. You can’t deduct that plasma screen television because you need to “research” the latest television shows**, kids.
So, what’s the easiest way to organize your tax receipts? By using a folder filing system. Now, I know you’re thinking, “But Ivy, how is a folder better than a shoebox? Isn’t that just a flatter version of a shoebox?” Sure it is, if you’re just throwing receipts in there. But you’re not. You’re going to make your receipts look something like this:
Staple (or tape) the receipt to a piece of paper, preferably one you have recycled from work or someplace so you’re not wasting paper. If the receipt only contains certain items that are deductible, circle those items on the receipt and add it together so you have the amount on the piece of paper. Also, make sure to write down what the receipt is for. This is especially helpful in the case of an audit- that way you can say, “Yes, sir, that widgety-woo was for the Home-Ec 101 giveaway we did back in April, 2002.”
Make sure to keep a special place in your wallet for receipts you may use for tax purposes. I usually check the receipt pocket on Fridays and then staple and label. Don’t let receipts languish in your wallet too long, you may lose one or forget what the heck it was you bought that was tax deductible.
Just keep the file folders handy and make sure you keep up with them, and it’ll save you tons of headaches when it’s time to do your taxes.
*No, I don’t really store my receipts that way, I had to dig into my purse to find random receipts I’ve tossed in there. That’s not exactly good either, but those aren’t my receipts for tax purposes.
**Well, maybe not, I don’t know for sure because I am not a tax professional.
Send your domestic questions to firstname.lastname@example.org.