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To Keep or Not to Keep – That is the Question

Let’s be honest, old business receipts don’t spark joy; even for the most fastidious bookkeepers. If you want to declutter your desk and create an inviting space to keep up with your paperwork, then you may want to recycle all the unwanted, joyless paper. But that may not be the right thing to do.
Sure, you track all your income and expenses in QuickBooks. (Right???) As a business owner, you want to know how money comes and goes so you can make effective business decisions. Like, does a particular farmers’ market generate enough profit to make it worthwhile? Should you focus on vegetables or poultry? Is a new farmstand financially viable?Though I wish the above were your #1 reasons for keeping solid books, the truth is you’re motivated by the other entities who are also interested in your financials:

  • Your bank or other lender, if you have a loan
  • Investors, if you have raised capital
  • IRS or a state revenue department, for a tax audit

Lenders want to ensure your business is on track to repay the loan; investors want to ensure they get their full return. Providing financial statements on a regular basis may even be part of your agreement. And of course, the IRS wants to track how much in taxes you owe.

Receipts of financial transactions (particularly business expenses) are the back-up documentation of all the transactions you recorded in QuickBooks (or other accounting system). And if you get audited by the IRS, you’ll want this. According to the IRS, your back up/supporting documentation should “show the amount paid and a description that shows the amount was for a business expense.”

So, the question is, do you need to keep all your receipts?

Here are a few guidelines about keeping receipts:

      1. If your credit card statements and bank accounts show all transactions (you don’t use
        cash) then they can be your primary source of evidence to support the accounting. In the event of an audit, and you can get print-outs of monthly statements from the bank or online banking system, then you do not need to keep paper statements.
      2. Receipts for expenses paid by credit or debit card are the secondary source of back-up documentation. While it is generally accepted that you keep these paper receipts, they likely will never be touched or seen again once you file them away. Unless required by your bank, you can simply keep a box of receipts for each year. No need to file them by category or month. The important caveat: you must be sure all receipts are being entered into QuickBooks. In the event of an audit your receipts are used as secondary evidence (bank and credit card statements are primary) to support the accounting.
      3. For all expenses paid with cash, then receipts are the primary accounting evidence and should be kept in a folder and filed safely each month. If you want to avoid the hassle of saving receipts, then don’t use cash in your business. What’s the likelihood that you will be audited by the IRS? If you’re reading this article, then chances are high that you are self-employed (a farmer or food entrepreneur) and operate a good portion of your business with cash (your customers pay with cash, and you pay for expenses with cash). Those are two of thirteen red flags that could trigger an audit.

The moral of the story:

  • Keep good records for the benefit of business management and the possibility of an audit
  • Avoid using cash in your business. It saves the hassle of holding receipts and reduces your risk of an audit.
  • Save your business receipts, but a shoebox is fine. No fancy filing system required. Save your fancy filing for your business management.
***Julia Shanks Food Consulting does not provide tax advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax advice. You should consult your own tax advisors before engaging in any transaction.
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The Farmer's Office

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