I hear this question very often when speaking with business owners. These receipts can be a hassle to keep up with and filing is never fun. If you had asked me a couple of years ago, I would have probably told you that credit card statements or bank statements showing the debit charges would have been enough to support your deduction for the IRS. This has changed a bit though as the IRS has become more detailed and seems to be questioning more when they do audit taxpayers now.
Our internal best practice has been filing this receipts in an accordion file by month. I don’t think It is necessary to spend too much time filing these receipts but just being able to locate them if asked by the IRS should be the goal. Another problem with our current technology has arisen though. Most receipts are now printed on thermal paper. If you have ever looked at one of these receipts a year or two later, they fade away and become a blank slip of paper. Therefore, I recommend that these receipts be periodically scanned to preserve the information. Otherwise, by the time the IRS gets around to asking for them, they may have turned into magical disappearing ink and the IRS may disallow the deduction.
I recommend all business owners invest in a sheet feed scanner and even consider going paperless to save time and have a reliable source of data for audit and record keeping. Fujitsu makes a great line of ScanSnap scanners and Neat Receipts has some great portable scanners also. Go ahead and bypass the flat bed scanners and move up to sheet feed scanners. You will thank me later!
We also have a new product for simplifying home and offices with paperless technology. Let us know if you would like more information on how we can protect your data in a paperless environment and help streamline your life!