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Top Tips For Organizing Your Small Business Receipts

organize reciepts for tax

There are all kinds of things small businesses can claim back at tax time, but you will need the proof to back your claims up.

On top of the (many) challenges of running your own business, keeping track of your expenses and keeping records can feel burdensome.

It may not be at the top of your priority list, but keeping a record of your company’s financial expense and income transactions is required by law if you’re self-employed or operate a small firm. If you keep solid records, you can avoid fines from the Canada Revenue Agency (CRA) if you are audited.

Additionally, remaining organized throughout the year helps save you time when it comes time to file your taxes.

However, we know from long experience that keeping track of receipts and other financial records the tax authorities demand you do often gets lost in the day-to-day running of a small business, so we’ve put up a list of seven pointers to help you keep track of your business finances.

Use a Business Credit Card and a Business Bank Account

Typically, when people work as freelancers or start their own small business, they use their own personal credit cards and bank account to fund the business and to receive payments. However, if you are going to be filing taxes as a business, even as a sole proprietor, that is never a good idea.

It’s a much better idea to keep a separate company account and credit card so that business and personal costs don’t get mixed up. Especially the reciepts.

You can also claim any costs linked with that card or account, provided all transactions are business-related. If the purchases are business-related, you can even claim the annual fee on a rewards credit card or the interest on a balance carried over from month to month.

Keep Your Receipts Safe.

The CRA won’t accept bank or credit card statements as proof of deductible spending; instead, you’ll require an itemized receipt for each transaction. These itemized receipts are referred to as “source papers” by the CRA.

Keep those receipts for at least six years after your last Notice of Assessment, as it is the maximum amount of time the CRA will seek to view them if you are audited. Physical receipts or digital versions can be kept, but you must have one or the other available for review (even if no-one ever asks for them, which is, of course, the ideal situation.)

Once a Month, Take the Time to Go Over Your Receipts.

Every month, we encourage our small business clients to sit down for 30 minutes to analyze and categorize their receipts. Or to send them to us and have us to do it. This keeps things manageable as the year goes on, and it keeps you on top of your expenditures, so you don’t miss out on any tax breaks.

Want to keep things really simple because you are super pressed for time? Every year, buy an accordion folder to keep all of your company receipts in. These low-cost folders are simple to buy and allow you to organize your receipts by category and year, making it easier to locate a certain receipt in the future.

Make Notes on the Back of Receipts

While COVID-19 has kept many of us indoors and meetings to Zoom only affairs, you may still have receipts for meals you ordered as takeout for clients in 2021, and it’s and it’s probable that, if you haven’t already, you’ll be resuming in person interactions very soon as the pandemic recedes.

For these expenses, immediately after the meeting, note who you met with and the purpose of the meeting on the reverse of the receipt, so you don’t have to remember specifics later.

Reminder: For business purposes, you can deduct 50% of your total meal and entertainment expenses.

Keep Track of Work at Home Expenses in an Excel Sheet

Perhaps you’ve always worked from home, or it was the COVID-19 pandemic that forced you to work remotely. If you’re self-employed and work from home, you can deduct a percentage of your cleaning supplies, utilities, and home insurance, as well as a portion of your property taxes, mortgage interest, and capital cost allowance.

To be eligible for these deductions, your home office must be your primary place of business.

You must also figure out what percentage of your home is used for business and apply that figure to your tax deduction. Make a spreadsheet to keep track of all of your receipts for home office expenses over the course of the year. Make it a monthly habit to update the spreadsheet. You’ll save the stress of trying to enter and total all of your work-from-home expenses at the end of the year.

Always Make a Digital Copy, Even If You Save Paper Receipts

We recommend keeping a digital duplicate of each receipt because traditional receipts degrade over time. And they are VERY easy to lose. It’s a good idea to take a picture of each receipt using your phone as soon as you receive it, and upload it to a central spot later.

Make the Switch to Digital

The CRA is OK with properly maintained digital receipts, especially as paper receipts are beginning to disappear altogether. Even most major stores now offer email or text receipts instead of paper, and when possible you should take that option, both for ease of record keeping and to do your bit to help the environment.

There are numerous free software platforms and mobile apps available that make digitizing paper receipts, when you do get them, simple. Evernote is a popular app that allows you to scan receipts by taking a photo with your phone, digitize them at the moment you receive them, and, if you want to keep paper records, consign the hard copy to that accordion folder later, but not have to worry too much if it gets lost on its way there!

Working with a small business accountant like K.K. Chartered Professional Accountant means that our experts will always do their best to ensure that at tax time you get every deduction you are entitled to. But we do need those receipts to back it all up! Hopefully the tips here will help you keep track of the proof needed to help you hang on to as much of your business income as possible!