Taxes 2012 – Support Your Deductions With Receipts
This is a perennial question, “Do I need to keep receipts for tax purposes?” The answer is yes, but what may surprise you is that the format may be paper or digital.
First, let’s deal with the IRS requirements. Section 6001 of the Code says that taxpayers are required to keep accurate records so that various types of costs and expenses that affect their income tax liability are able to be determined. These records should be kept for at least the period of limitation for that return.
Then we move to Rev. Proc. 97-22 which gave taxpayers the right to document receipts in digital form as well as paper form. The taxpayer must ensure “an accurate and complete transfer of original computerized books and records to an electronic storage media. The electronic storage system must also index, store, preserve, retrieve, and reproduce the electronically stored books and records.” If you are moving to collect your stuff in digital form, make sure you can retrieve and preserve all this support for a few years. If you scan your receipts into electronic format, you may then dispose of the paper receipts. Just make sure the digital storage works properly and is accessible before destroying your paper receipts.
Finally, many publications by the IRS help guide you in understanding how to document support for income and expenses. Their Tax Guide for Small Business is a good one to check with, as well as any publication dealing with itemized deductions.
I ran across some research from a couple of years ago that you will find interesting. This study shows that 80% of the U.S. population receives one to three receipts a day, 11% of which immediately get thrown away. With America’s retailers generating approximately 228.7 million pounds of receipt paper per year, this translates to 22.87 million pounds of paper that instantly become trash.
Then there’s this guy who blogged about receipts the other day. He says he has more receipts in his wallet than money. He thinks it would be cool to receive a trophy every time you make a purchase, perhaps even a small pet or sticker. I like his creativity. See “Bonfire of the Receipts.”
Right now I guess we still need to document, so which ever way you do it make sure to do it well.