In today’s fast-paced digital world, managing receipts is a task businesses can’t overlook. While paper receipts were once the norm, digital receipts have transformed how companies handle expense tracking, tax compliance, and auditing.
In this blog, we’ll explore what digital receipts are, how they work, why they’re essential for businesses, and the IRS rules around them. We’ll also explain why old-school methods like shoeboxes no longer work and how automated tools can simplify your receipt management process.
What Are Digital Receipts?
Digital receipts are electronic versions of traditional paper receipts. They capture all the essential details of a transaction, such as the date, time, amount, and items purchased, but in a digital format. These receipts are typically sent via email or mobile apps or stored in cloud-based systems.
Digital receipts are more than just environment friendly–they’re a more secure and organized way to keep track of expenses.
How Digital Receipts Work
The process is simple. When you make a purchase, instead of a paper receipt, you receive a digital copy via email or text. These receipts can be stored electronically, integrated with expense management software, or uploaded to cloud storage for future reference. Businesses can easily link them to accounting systems, making expense tracking and audits much smoother.
Why Are Receipts Important for Businesses?
Receipts aren’t just proof of purchase; they are critical for legal and tax compliance. They serve as documentation for business expenses, allowing companies to track spending, justify tax deductions, and prepare for potential audits.
Well-organized receipts ensure that a business’s financial records are accurate and up-to-date.
Why does this matter?
Without proper receipt documentation, businesses may face issues with the IRS during audits, risk losing deductions, or suffer financial mismanagement.
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IRS Rules Around Receipts
Maintaining receipts isn’t just best practice–it’s a legal requirement for tax purposes. The IRS mandates that businesses keep thorough documentation of all purchases, sales, and other transactions to support the figures reported on their tax returns.
Here’s a breakdown of the key rules every business should follow:
Receipt Requirements
The IRS requires businesses to record receipts when goods or services are received. Ideally, this should be done no later than seven days after receiving a vendor’s invoice.
Prompt documentation helps ensure that records are accurate and up-to-date, reducing the risk of errors during audits or tax filings. Receipts should include essential details such as the date, amount, vendor name, and a description of the goods of the goods or services.
Supporting Documentation
Beyond just receipts, the IRS expects businesses to keep supporting documentation that substantiates their transactions. These documents may include:
- Invoices
- Delivery notifications
- Bills of lading (for goods)
- Proof of payment (canceled checks, credit card receipts, etc.)
- Timesheets (for services or labor)
For example, if you purchase materials for your business, you should retain the invoice, payment receipt, and delivery confirmations to fully document the transaction. This kind of evidence is vital during an audit to prove the legitimacy of business expenses.
For more information, please refer to IRS Page: What kind of records should I keep
The $75 Rule
The IRS generally does not require businesses to keep receipts for any expenses under $75. However, there are some exceptions. For lodging expenses, receipts are always required, regardless of the amount.
While the $75 rule simplifies receipt management for small expenses, it’s still important to accurately track all business-related purchases in case further clarification is needed during an audit. Many businesses choose to keep all receipts, even those under $75, to ensure full transparency and consistency in their record-keeping.
For more information, please refer to 26 CFR 1.62-2: Reimbursements and other expense allowance arrangements.
Record Keeping
Businesses are required to store receipts and supporting documentation in an organized manner. The IRS recommends keeping records for at least three years after filing the associated tax return.
However, this period may extend to seven years in cases where income is underreported by more than 25% or if a return was not filed. Maintaining organized, easily accessible records is crucial to avoid penalties or complications during an audit.
Digital Receipts
Yes, the IRS accepts digital receipts as valid documentation, provided they meet specific criteria. Digital receipts must be:
- Accurate: They should clearly display all necessary details, including date, amount, vendor, and transaction description.
- Readable: Receipts must be legible and in a format that can be easily read and understood by auditors.
- Retrievable: Businesses must ensure that digital receipts can be accessed promptly when needed. It’s important to use secure storage solutions that offer backup and search functionalities for easy retrieval during an audit.
Why Shoeboxes and Manual Storage Don’t Work for Receipt Management Anymore
While stuffing receipts into shoeboxes or filing cabinets may have worked in the past, today’s businesses need more efficient methods. Paper receipts can easily get lost, damaged, or fade over time. Moreover, manual storage is time-consuming and makes it difficult to retrieve specific receipts when needed, especially during audits or tax preparation.
How Fyle Can Help You Manage Digital Receipts
Managing receipts doesn’t have to be tedious or time-consuming. With Fyle, businesses can streamline the entire process and track expenses effortlessly. Here’s how Fyle can help you:
- Submit receipts via text, powered by AI: Employees can text a photo of their receipts, and Fyle’s AI will automatically extract and categorize the data for expense reports.
- Mobile app for on-the-go tracking: Upload receipts via the mobile app, where Fyle scans, extracts, and codes them automatically. Plus, you can bulk scan up to 20 receipts at once!
- Attach receipts from Gmail and Outlook: Submit receipts directly from your inbox, with Fyle extracting the data and attaching it to the expense report automatically.
- Create and submit expenses on Slack: Use Slack to upload receipts and create expenses with ease.
- Email forwarding: Employees can forward receipts via email, and Fyle will convert them into expenses instantly.
