Home » The Ultimate Guide to Organizing Your Receipts for Tax Deductions
As tax season has moved on, you’ve no doubt been thinking about the documents you needed to file your taxes accurately and avoid any potential issues with the Canada Revenue Agency (CRA). But have you been thinking about just hat you will need to save, even after your tax returns have been filed for the year?
Some of the most crucial pieces of documentation you need in relation to your taxes – both business and personal – are receipts for any expenses you claimed on taxes. In this blog article, we’ll discuss why it’s important to save receipts and offer some advice on the best ways to keep them organized.
Receipts are essential because they provide evidence of expenses claimed on tax returns. Should it choose to, the CRA may require proof of expenses claimed to ensure that taxpayers are not claiming deductions or credits they are not entitled to. Without receipts, it can be challenging to prove expenses claimed, leading to the disallowance of deductions and credits claimed.
It’s also important to note that the CRA can request receipts for up to six years after a tax return is filed. Failure to provide receipts when requested can result in penalties and interest on unpaid taxes.
When the CRA requests receipts to support claimed expenses, tax payers are required to provide them. If you are asked to provide receipts by the CRA, you must submit them by mail or electronically through the CRA’s My Account portal.
When submitting receipts by mail, you should include a cover letter that clearly identifies the tax year, the expense category, and the total amount claimed. The receipts should be organized and listed in the same order as the expenses claimed on your tax return. It’s important to keep a copy of the cover letter and receipts for your records.
When submitting receipts electronically through the My Account portal, you should scan your receipts and save them as a PDF file. The file should be labeled with the tax year, the expense category, and the total amount claimed. You should also include a note explaining what the receipts are for and why they are being submitted.
It’s important to note that the CRA may request additional information or documentation to support claimed expenses. If this happens, you should provide the information or documentation as soon as possible to avoid any delays or issues with your tax return.
By following these specific processes, tax payers can ensure that they are providing the necessary documentation if requested by the CRA and that they are claiming deductions and credits accurately. Keeping all receipts organized and easily accessible can also help prevent any issues with the CRA in the future.
Canadians – that’s you- should save receipts for any expenses they plan to claim on their tax returns. This can include but is not limited to:
Receipts should be kept for all purchases made, whether they were made in cash or with a credit card. Additionally, you should keep any invoices or receipts for services rendered, such as home or office repairs or maintenance work.
Now that we’ve established why it’s crucial to save receipts let’s discuss how to organize them to prevent losing them or creating clutter.
Going digital is one of the easiest and most efficient ways to store receipts. There are lots of apps available that can help you save receipts digitally, such as QuickBooks, Shoeboxed, and Expensify.
These apps allow you to take pictures of receipts as soon as you get them using your smartphone or tablet and store them in a centralized location. This way, you can access your receipts anytime, anywhere, and it saves you from the hassle of carrying around piles of receipts in your wallet or purse.
In addition to storing receipts, these apps can also help you track your expenses, categorize them, and generate expense reports. Some apps even integrate with accounting software, making it easier to reconcile expenses with your bank statements.
When using a digital storage system, it’s important to make sure that your data is secure. Choose an app that uses encryption to protect your information and always use a strong password. It’s also a good idea to back up your receipts to a cloud storage service, so you never have to worry about losing them.
If you prefer to keep physical copies of your receipts, it’s essential to keep them organized. One way to do this is to use an accordion file folder labeled with different categories of expenses, such as medical, charitable, and business expenses. You can also use a binder with dividers labeled for each expense category.
When storing receipts, it’s important to make sure they are legible and in good condition. Faded or damaged receipts may not be accepted by the CRA, so make sure to keep them in a safe place. It’s also important to make sure your receipts are easily accessible, so you don’t waste time searching for them when you need them.
Another very simple option for physical storage is to use envelopes labeled with different expense categories to keep receipts organized. This option is more affordable than buying a file folder or binder and can be easily implemented at home.
When using envelopes, it’s important to label them clearly and keep them in a safe place. You can also use different colored envelopes to make it easier to distinguish between different expense categories. It’s also a good idea to keep a record of which receipts are in each envelope, so you don’t forget which expenses you’ve already claimed.
Scanning receipts is another way to save physical copies of your receipts while also creating a digital backup. You can use a scanner to scan your receipts or take a picture of them using your smartphone or tablet. Once you have a digital copy, you can store it on your computer or in a cloud storage service.
When scanning receipts, it’s important to make sure they are legible and in good condition. You should also make sure to name the file with the date, vendor, and amount, so it’s easy to find later. Once again, you should take the time to upload your digital receipts to a cloud storage service, so you never have to worry about losing them.
If you run a business, it’s essential to keep your personal and business expenses separate. Mixing personal and business expenses can make it difficult to track your business expenses accurately and can lead to issues with the CRA.
One way to keep your personal and business expenses separate is to use different bank accounts and credit cards. You should also keep separate envelopes or folders for personal and business expenses. When storing receipts, make sure to label them clearly as either personal or business expenses, so you don’t accidentally claim a personal expense on your business tax return.
In conclusion, while saving and organizing receipts is crucial for filing taxes accurately, it’s understandable if the process feels overwhelming. That’s why working with an accountant can make a significant difference in navigating the complex world of tax filing.
At K.K. Chartered Professional Accountants, our team of experienced professionals can provide tailored tax solutions for individuals and businesses in Ontario, making tax season a breeze. But that’s not all.
From bookkeeping to financial statements, we can help you with all your accounting needs. Don’t hesitate to contact us to learn more about how we can assist you.