The key to successfully and consistently organizing your receipts is to lay a strong foundation from the start. Particularly, you want to follow an approach that simplifies tax deduction calculations and ensures you’re audit-proofing your business.
The type of foundation you create will depend heavily on whether you’re organizing receipts in the cloud or physically. To make this guide easier to digest, we’ll be talking about those approaches separately and show you how small businesses organize receipts in each case.
Organizing receipts in the cloud
Fortunately, technology is making it easier than ever to digitize and store your documents in the cloud.
There are many benefits that come along with organizing receipts in the cloud. When you go paperless, there’s little risk of receipts getting lost, fading, or getting damaged. Moreover, moving away from physical storage can help you gain back valuable office space (up to 25%, in some cases!).
With so many online vendors providing the option to email or download digital receipts, it’s easier than ever to automate the organization of your receipts. Tools such as Hubdoc act as a digital filing cabinet and can automatically fetch, organize, and store your digital receipts. (Learn how to automatically fetch bank statements, bills, and receipts here.)
Hubdoc also integrates with cloud storage platforms (including ShareFile, SmartVault, Google Drive, Box, and Dropbox) for automated additional backup and an even more streamlined document workflow. Better yet, it makes your documents easily searchable, so they’re always available at your fingertips.
Of course, we’re not living in an entirely paper-free world just yet! Fortunately, there are solutions designed to help digitize paper receipts. Fujitsu ScanSnap scanners can easily scan multiple documents with just the click of a button, and Hubdoc’s mobile app enables small business owners to take photos of receipts, then send them in to be automatically filed in Hubdoc. The only discipline required is remembering to snap a photo every time you make a transaction (or, setting aside a few minutes every week to do this). It’s a small behavior change that has a huge impact!
If you combine those services with Xero or QuickBooks Online, both powerful cloud accounting platforms, your tax deductions will also be easy to calculate at year end. This is because your bank transactions will be automatically downloaded and will get organized into the correct categories, primed for tax time.
An alternate but effective option for many small businesses is to snap a photo of the receipt or scan it onto their computer and then upload directly to cloud storage services, such as Dropbox, Box or Google Drive. This is good but doesn’t automatically enter receipts into your accounting, make them easily searchable nor make tax deductions easy to calculate.
Regardless of the solution you choose, having all of your financial documents in one place will help you prepare for tax time!
Physical storage (a.k.a., using a filing cabinet!)
Storing receipts physically can be challenging, so it’s vital to be disciplined and create a strong filing structure from the start.
We recommend the following steps:
1) Identify the relevant tax deduction categories for your small business and location. (Here are some helpful resources for Canadian businesses, U.S. businesses, UK businesses, and Australian businesses).
2) Leverage that list of relevant tax deductions as a starting point for your filing structure. For each tax deduction category, create a parent folder. Then create a list of expense types that would go into each deduction category and create sub-folders for them. Now you have a strong filing structure in place!
3) The last step is simple, but challenging to maintain long-term: saving each of your receipts and remembering to file them into their relevant categories.
This helps to ensure you have a copy of every receipt – a great milestone! Where it might fall short is protecting you against the risk of documents getting damaged and ensuring your business has one master accounting ledger with not only bank transactions but also the source documents, as required by the IRS and CRA.
Receipt organization is important!
In conclusion, the key to organizing receipts for your small business is to make sure there’s an easily manageable workflow for the software tools you’re using or your filing cabinet. If you set a strong foundation from the start and adopt strong organization habits, you'll find that keeping your receipts organized is a breeze.
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Editor’s Note: This blog post was updated on May 18, 2018.