What Types of Receipts Will You Need to Keep for Taxes?
Many people have wondered, "What receipts should be kept for taxes?" Since there are different types of receipts, keeping them for tax documentation would be a good idea because it can provide a more accurate overview of your financial situation. So, let's review why gathering the receipts is essential, the benefits of holding on to them, and what type of receipts you will need to save.
Whatever records you keep, it's a good idea to organize and store them systematically. This will help you, your accountant (if you have one), and the HMRC, IRS, or the EU’s Taxations and Custom’s Union if they need to ask you any questions. You may also be surprised to find that some of these everyday purchases and bills are tax-deductible.
What Happens If You Don't Keep Adequate Records?
If tax officers need to check your tax return for any reason and you cannot show them the records you used to complete the return, you may be required to pay a penalty, depending on where you live.
What Types Of Receipts Will You Need To Keep For Taxes?
Basically, keep any records and documents that you have received or created that will be used to fill entries in your Self-Assessment or Company Tax Return or your claim form if you are claiming benefits or allowances. The majority of these records will be from the tax year or accounting period they pertain to or shortly after that.
However, you will occasionally need to refer to few-years old records. For instance, if you sell an asset you have owned for a long time (such as land, shares, or a valuable chattel, such as a painting), you may need older records to calculate a capital gain or loss.
Different countries have different rules and regulations about the receipts and documents you should keep, but no matter which country you live in, according to IRS (1), it is important that you hold on to the following as some of the records:
• Gross Receipts
The income you receive from your business (such as Cash register tapes, Deposit information (cash and credit sales), Receipt books, Invoices)
Items purchased and resold to customers.
The incurred costs (other than purchases) so you can carry on your business. Your supporting documents should determine the payee, the amount paid, proof of payment, the date incurred, and contain a description of the item purchased or service received that demonstrates the amount was for a business expense.
The property you own and use in your business, such as furniture and machinery. You must keep records to verify specific information about your business' assets. When you sell assets, you must keep records to calculate the annual depreciation and the gain or loss.
The following documents may show this information.
o Sales and purchase invoices
o Real estate closing statements
o Canceled checks or other documents identifying the payee, amount, and proof of payment/electronic funds transferred
You must keep specific employment tax records. Also, keep all of your employment records for a minimum of four years.
• Healthcare Expenses
Keep all receipts for medical expenses incurred by you, your spouse, children, or other dependents. There are numerous tax deductions for healthcare premiums and co-pays. Deductions are also available for medical equipment, breast pumps, glasses, contacts, and other items.
• Childcare Expenses
Although childcare costs cannot be simply deducted, you may be eligible for a tax credit depending on your tax situation. Because the amount varies depending on your income and expenses, you must keep all of your receipts for different expenses such as a nurse, cleaning person, or childcare provided by the licensed care center or babysitter
• Travel Expenses
You may be able to deduct your business trips expenses. We recommend keeping all fuel, flight, hotel, parking, and meal receipts.
• Business Expenses
Regardless of how small the business purchase is, it can add up to a significant tax deduction. As a result, you must keep detailed records of all business income and expenses. These can include a wide range of items and will vary depending on the nature of your business. For more accurate information, we recommend that you research everyday business expenses in your industry.
• Charitable Donations
You can deduct your contributions whether you made a donation such as clothing or food to a local shelter or cash to veterans. However, a deduction claim can only happen if you donate to a tax-exempt organization. You may be required to request a receipt, but do so if you want to itemize your tax return.
• Cash Withdrawal
keep a record of all money taken out of the business bank account or paid in cash for your or your family's personal use.
• Personal Funds
keep track of all personal funds paid into the business.
An invoice is required for VAT purposes under EU rules (2) in:
• Business-to-Business (B2B) Supplies
In most cases, a business must issue invoices whenever goods or services are supplied to another business or a non-taxable legal entity (local authorities, associations, etc., that do not charge VAT).
• Business-to-Consumer (B2C) Transactions
A business must issue an invoice when it supplies certain goods to a non-taxable person (generally a private individual).
There may also be specific national rules on transactions requiring an invoice.
But to make it simpler, consider the following rules (3) to help you decide which receipts to keep and which to discard:
• Is the receipt for a business purchase?
• Can the purchase be deducted?
• Is the receipt the only proof of purchase?
Keep the receipt if you answered yes to any of those questions. If you don't end up using the receipt for your tax return, you can always throw it away.
How to Save Receipts?
You can either keep records and receipts in a paper format or an electronic format. Still, it is essential to make sure that the process of recording receipts isn't too time-consuming or overwhelming. Otherwise, you may be more likely to make mistakes.
Though a paper filing system can be used, we strongly recommend receipt saver apps to everyone; regardless of your tax situation and no matter how well-organized you are, a receipt saver app such as HouseHood can help reduce massive amounts of clutter in your office. Instead of storing receipts from years ago in a filing cabinet, you can keep everything you need in the palm of your hand.
The records and receipts to hold on to include sales invoices, bank statements, and business expenses such as mileage. Some of these are tax-deductible, so you can make a claim for them on your tax return and potentially reduce the Income Tax you'll pay for that tax year. An application like HouseHood lets you quickly scan the receipts, helps you stop hoarding them, and manage them more easily. The content above is for informational purposes. Before making any decision or taking any action, and in order to find more accurate information about the tax regulations in different countries, please refer to their affiliated website.