When I first started my business, I knew that I had to keep all the receiptsI gathered if I wanted to be able to deduct business expenses on my income tax. So I did – stuffing all my business receipts into a drawer of my desk.
This was a fine system until the time came to do the bookkeeping, and I bitterly discovered that having a disorganized mass of receipts was almost as much trouble as having no receipts at all.
A Better System
Over the years I developed a much better filing system for receipts, a filing system that makes data entry easy and allows me to retrieve a particular receipt with some hope of success if I ever need to go back and find one.
What I do to keep my business receipts organized is keep a series of file folders labeled by month and year, such as "Receipts November 2015". The two most current file folders sit on top of my desk, so when I collect receipts on my various rounds, it's easy for me to pop them into the correct monthly folder.
Then when I do my monthly data entries, I take the appropriate monthly file folder and sort the business receipts into piles based on their income tax classifications. For instance, I paperclip together all the software receipts, all the food and entertainment expense receipts, and all the automobile-related expense receipts.
When I'm finished entering the data, I put the receipt folder of the month in the appropriate place in a drawer of one of my filing cabinets.
If you're a business person with a lot of expense receipts, it's easy to adapt the system I've outlined above to do data entry more frequently.
Making Copies or Digital Images of Receipts
If you are trying to make the shift to a "Paperless Office" (aren't we all?) you can scan expense receipts and store them with your other digital accounting information.
In fact some of the newer Cloud-based accounting software applications have mobile apps that allow you to take a mobile phone snap of an expense receipt and record it on the fly (see The Best Accounting Software for Small Business).
Keep in mind that paper copies or digital images of expense receipts are generally acceptable to the Canada Revenue Agency (CRA) provided they are clearly legible. If not the CRA may demand to see the original paper documents during an audit or routine request for documentation, so the originals should always be kept for the prescribed time. (See How long do I have to keep my business records?)
Ease Your Tax-Time Burden
And here's the payoff for having taken the time to organize your expense receipts before you filed them – doing your business's income tax return will be so much easier.
For one thing, you'll have all your receipts that are going to serve as proof for your business-related income tax deductions. No more desperately digging through the glovebox of your car or that disorganized drawer that you've been tossing receipts into all year.
For another, having already sorted your receipts by business expense categories, all your relevant receipts for each category are ready to tally, making filling out your income tax return faster and easier.
(In Canada, if you operate a sole proprietorship or a partnership, your business expenses are entered on the T2125 form that is part of your T1 personal income tax return. Here's How to Complete the T1 Canadian Income Tax Form as a Business.
If you are operating your business as a corporation in Canada, you will claim your business expenses on your T2 corporate income tax return. See How to File Corporate Income Taxes in Canada ).
Wondering if you can claim a business expense when you don't have the receipt for that expense? See Can I claim business expenses that I no longer have receipts for?
When Your Income Tax is Filed
Because so many income tax returns are now filed online (through NETFILE in Canada), it's no longer common (or necessary!) to send your expense receipts in when your file your income tax.
Instead, put all your relevant receipts for the tax year in a single folder labelled "Tax Receipts 20__", and add the folder to the growing collection of tax folders in your filing cabinet.
(You have to keep business-related receipts for six years in Canada, so you'll always have at least six of them.)
If you ever have any kind of dispute with the Canada Revenue Agency or IRS, or get audited, your receipts will be crucial evidence – and if you follow this system consistently, any receipt you're looking for will be relatively easy to find.
(Read 10 Red Flags That Will Get Your Small Business Audited to see if your Canadian business is a likely candidate for an audit by the Canada Revenue Agency.)
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