Business Receipts: What the IRS Needs and How Long to Keep Them

A deduction is only as good as the paper behind it. When the IRS questions an expense, the burden is on you to show what you paid, when, to whom, and why it was for the business. A receipt does most of that work, which is why the receipt you can't find is the one that costs you.

This guide covers what a receipt has to show, when a card statement won't do, the special rules for travel and meals, whether a scan can replace the paper, and how long to keep everything.

What a receipt needs to show

The IRS asks for supporting documents that show the amount paid and that the amount was for a business expense. In practice, a receipt that holds up shows four things:

1. The payee: the vendor's name, and ideally its address
2. The amount: the total you paid
3. The date: when the purchase happened
4. What you bought: enough description to connect the purchase to the business

The first three are printed on almost every receipt. The fourth is where receipts fall short. "Harbor Coffee Co., $134.77" doesn't say whether that was a client breakfast or your family's weekend. When the business purpose isn't obvious, write it down: who it was with, what it was for. A note on the receipt works; so does a memo on the bookkeeping entry it supports, made at the time rather than reconstructed at tax time.

Why a card statement isn't enough

A bank or credit card statement is proof of payment. It shows that you paid a vendor a certain amount on a certain date. What it usually doesn't show is what you bought: a statement line from a hardware store could be lumber for a rental repair or a grill for your patio.

The same goes for a canceled check. On its own it doesn't prove a business expense; paired with the vendor's bill or invoice, it ordinarily establishes the cost. Treat statements as the backup that proves you paid, and the receipt or invoice as the record that proves what for.

Travel, meals, gifts, and car expenses: the $75 rule

These categories have stricter substantiation rules, set out in IRS Publication 463. For each expense you need a record of the amount, the time and place, and the business purpose, and for meals and gifts, the business relationship of the people involved.

On top of that, you need documentary evidence such as a receipt:

• for lodging, at any amount
• for any other expense of $75 or more

Below $75 (other than lodging), a timely written record of the details can stand in for the receipt. There's also an exception for transportation expenses where a receipt isn't readily available, such as some transit fares.

If you reimburse yourself or employees through an accountable plan, the same documentation is what makes the reimbursement tax-free, and it has to be turned in within a reasonable time (the IRS safe harbor is 60 days).

Can a scan replace the paper?

Generally, yes. Revenue Procedure 97-22 allows businesses to keep books and records in an electronic storage system and discard the paper originals, provided the system:

• produces accurate, complete, legible images
• lets you find and retrieve a record when asked, and reproduce it as a readable copy
• has controls against unauthorized alteration or loss

That's good news, because paper is a poor archive. Many receipts are printed on thermal paper, which fades with heat and time, sometimes within a year or two. A clear scan made the day you get the receipt is often more legible at audit time than the original would be.

Two cautions. Check your state's rules, since state tax agencies can set their own record requirements. And for large purchases, especially assets you'll depreciate, it costs little to keep the paper too.

How long to keep receipts

The IRS ties record retention to the period of limitations, the window in which it can assess more tax or you can claim a refund. From IRS Publication 583:

A return filed before its due date counts as filed on the due date.

Records for property are different. Keep the receipts for buying and improving an asset (a building, equipment, a vehicle) until the period of limitations expires for the year you sell or dispose of it. You'll need them to figure depreciation and your gain or loss, which could be decades after the purchase.

A routine that keeps up

Receipt problems are almost always timing problems. The receipt was fine on the day; it was lost, faded, or forgotten by the time anyone needed it. A routine that holds up:

1. Capture it the same day. Photograph or scan the receipt before it goes in a pocket.
2. Note the purpose while you remember it, especially for meals and anything ambiguous.
3. Attach it to the bookkeeping entry it supports, so the proof sits with the expense instead of in a separate folder.
4. Keep one system, organized by business, so each entity's records stay separate.

This is the workflow Sedna's receipt scanning is built around: snap a photo, review the details it reads, and post the entry with the receipt attached.

Frequently asked questions

Is a credit card statement enough to prove a business expense? Usually not on its own. A statement proves you paid a vendor a certain amount on a certain date, but it rarely shows what you bought. Keep the receipt or invoice that describes the purchase, and note the business purpose for anything that isn't obvious from the receipt.

Do I need a receipt for expenses under $75? The $75 rule comes from IRS Publication 463 and covers travel, meals, gifts, and car expenses: you need documentary evidence such as a receipt for lodging at any amount and for any other expense of $75 or more. You still need a record of the amount, date, place, and business purpose below $75. For ordinary business purchases outside those categories, keep the receipt whatever the amount.

Can I throw away paper receipts after scanning them? Generally yes. Revenue Procedure 97-22 lets you keep records electronically and discard the paper, as long as your scans are accurate and legible, you can find and reproduce them, and your system guards against alteration. Your state may have its own rules, so check before shredding receipts for large purchases or assets.

How long should I keep business receipts? At least three years from the date you filed the return they support, which is the general IRS period of limitations. Keep them six years if you underreported income by more than 25%, seven years for a worthless-securities or bad-debt deduction, four years for employment tax records, and until the limitations period ends for the year you dispose of an asset for anything related to that asset.

Related

• Accountable plans: reimburse yourself tax-free, with receipts as the substantiation
• Rental property bookkeeping: the records a landlord should keep for each property
• The home office deduction: what evidence to keep for a home office
• Receipt scanning: photograph each receipt and keep it attached to its entry

References

• IRS Publication 583, Starting a Business and Keeping Records: Supporting documents and how long to keep records
• IRS Publication 463, Travel, Gift, and Car Expenses: Substantiation rules and the $75 documentary-evidence threshold
• IRS: How long should I keep records?: Period-of-limitations summary
• Revenue Procedure 97-22: Requirements for electronic storage of books and records