Keeping Receipts – When It Makes Sense And How To Do It
Keeping receipts - when, how long, how, and dealing with adding them up - constitute a significant part of the questions we get from clients. Here is what you need to know:
Keeping receipts - when to do it
Was the purchase UNDER $75? Just keep a note of the expense, don’t bother with the receipt.
Keeping medical receipts?
Most people keep receipts for medical bills, thinking that they’re deductible. They are - IF you meet certain hurdles first. Let’s walk through these hurdles and see whether you can’t just pitch out all those co-payment and prescription receipts:
Your medical bills have to exceed 10% of your adjusted gross income - less, if you’re over 65. If you earned $75,000, that means that the first $7,500 of your medical bills are on you, and only the part that exceeds $7,500 can add to your deductions
You have to be able to itemize - your deductions have to exceed $6,350 if you’re single, or $12,700 if you’re married/joint. If you don’t have home mortgage and other deductions on Schedule A, your medical expenses alone will only become deductible after you’ve cleared the 10% initial hurdle and then the portion that exceeds the 10% exclusion exceeds the standard deduction.
You earned $63,000 after student loan interest but before deductions or exemptions. You had some surgery, and your out of pocket was $11,500.
The first $6,300 is not deductible. That leaves $5,200 that could increase your deductions. If you have mortgage interest and are single, you should hang on to those medical receipts and payments. If you’re married, or if you don’t own a home with a mortgage - you might still not benefit from those medical expenses.
Keeping job expense receipts?
Everyone has to buy things for work - clothes, shoes, dry cleaning - can you deduct any of it? What about expenses that the company would have reimbursed you for, but that you didn’t get around to submitting on time? You can deduct that, can’t you?
Rules for clothes, shoes, dry cleaning, parking, commuting to work –
Unless they are uniform shoes or clothing that cannot be worn to a meet up with friends you don’t work with, no deduction. They’re just clothes. Same for the dry cleaning. Parking at work is also on you; it’s a choice, not a requirement to work. Driving to and from work - same story; it’s a choice how you get to work, not a requirement.
Uniforms, work shoes/boots, safety equipment, other expenses –
These can be deductible, but you have to cover the first 2.0% of your adjusted gross income - and then, you can add the overage to your itemized deductions.
You earned $134,000 from your traveling job and had $11,000 or so in expenses you didn’t get turned in on time, so the company didn’t reimburse you. You’re single, and you don’t own a house with a mortgage.
The first $2,680 of your unreimbursed expenses are yours and not a deduction. That leaves $8,320 that could provide a deduction.
The standard deduction is $6,350, so you can use that $8,320 to reduce your taxable income on schedule A!
Keeping receipts - for how long?
The rule of thumb has always been six years from the due date, actual filing date or tax assessment date for the tax year you’re wanting to dispose of, whichever is latest. However, recently the IRS changed its guidelines on document retention, and is recommending that you keep your receipts for TEN YEARS, as they’ve expanded the review period for returns to that time. So, if you filed your return on time for 2006 and you’ve not been notified that they want to review some part of your return, you’re safe destroying those records.
Keeping receipts - best practices
Most people now try to rely on their credit card or bank statements as proof of purchase/expense. DON’T DO IT.
The best way to keep receipts:
For paper receipts - keep the paper receipt, or keep a scanned, digital image
For thermal paper receipts - MAKE A COPY OR SCAN and save THAT
For emailed receipts - pull the email out of your “in” box and save it as a PDF or other document or image file
Receipts should clearly indicate the date of the expense, what the business purpose was, and, if you paid for other people, their names and associations to the business purpose.
Interested and want to learn more? Contact us and let’s get started.