Do You Have To Keep Paper Receipts For Taxes? The Great Tax Myth

Across America, 1099 contractors and freelancers everywhere continue to stuff their wallets & glove compartments faithfully with paper receipts. However, the idea that you must have receipts for every tax deduction is a common misconception when it comes to self-employment taxes.

Keeping track of paper receipts for taxes is not only pointless, but also quite stressful. Little pieces of paper are easy to misplace, liable to get torn or smudged. By tax time, nine months later, the ink has likely rubbed off and paper mangled into crumpled pocket lint.

For the sake of stressed-out small business owners and freelancers everywhere, let’s put this misconception to rest. You can just use a business expense tracking app to organize receipts for your tax return. Keeper will automatically find itemized deductions for you.

What the IRS Says About Receipts For Taxes...

In regards to what the IRS sats about receipts for taxes is that basically, you just need a record and proof of payment. Click over to the IRS website and you’ll find a very clear outline of what constitutes a sufficient record for a business tax deduction. Basically, this kind of document  needs to show what you bought, when you bought it, and how much you spent. It’s not rocket science.

And guess what? Nothing mentions needing paper receipts. Instead, the IRS mentions credit card statements, and then goes on to state, quite bluntly, that “Electronic information management has become the standard in the private sector…instead of continuing to use traditional paper books”. 

For an organization not exactly known for being progressive, that’s about as clear as it gets: paper is out. Accounting software that automatically organizes your tax records, receipts and tax documents are in. An app can make itemizing a breeze.

How To Record Receipts For Taxes

Can you use your bank statement for tax deductions?

Yes, bank statements are sufficient. Let’s play a game. What do we all have that automatically records our purchases? That’s right -- a credit card and bank statement. It contains all the critical information -- what, when, and how much

With these online records from your credit cards or bank account, you can easily track good records of all your tax-deductible expenses. Easy peasy.

But what about cash purchases for tax purposes?

Even cash purchases don’t need receipts, as long as they’re “reasonable and ordinary.”We call this principle the “Cohan rule,” established in the famous Cohan vs. Commissioner Circuit Court of Appeals case. As a rule of thumb, most goods under $75 count.

What if there’s an IRS audit?

Contrary to popular belief, the IRS isn’t some kind of uncompromising bully. Unless you’re guilty of tax evasion, there’s no need to worry. Yes, they will ask for documentation, but they also prefer that documentation to be digital. They are legally required to accept digital forms of proof, including bank and credit card statements. 

At worst, you might need to look up receipts for your bigger expenses -- a new laptop from Best Buy, a desk from Amazon -- that kind of thing. Still, most merchants have digital records. Emails and calendar notes might also be requested.

One exception: large, undocumented expenses

The only exception to this rule is, essentially, large cash purchases. 

If you took a dozen clients out for lunch at the best steakhouse in town and then paid with cash, you should probably hold onto that receipt. 

Even so, you’d probably be okay without it. Modern technology leaves behind enough digital breadcrumbs to constitute the proof you need. Calendar events, emails, or just giving the restaurant a call can all take the place of a paper receipt.

It’s 2020, people! Stop hoarding tax receipts

It’s amazing how fear and misunderstandings can complicate our tax situation as well as our lives. Tax preparation can be quite simple. Listen, stop piling up your paper receipts for taxes. If you’re self-employed, odds are that you have enough things on your plate as it is. Oh, and if your tax professional or accountant is giving you trouble, get a new tax preparer or CPA. Stop listening to lousy tax advice. When there’s no downside to being hyper-conservative, it’s no surprise that some accountants continue to insist on the record keeping practices of the 1930s.  

At Keeper Tax, we’re on a mission to expose these kinds of regressive misconceptions. We are dedicated to making your tax season less stressful. Whether it’s the mileage tracking myth, the home office myth, or the  business meals myth, we try to simplify it for you. We just hate to see hard-working freelancers and contractors held back from getting the tax savings they deserve. You can bet that corporations claim every tax write-off possible -- and so should you to lower your taxable income. You deserve it.

Automatic tax savings for 1099 contractors.

Keeper Tax automatically finds tax write-offs among your purchases. On average, people find $1,249 extra savings in under 10 minutes!

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Justin W. Jones, EA

Justin W. Jones, EA

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Justin is an IRS Enrolled Agent, allowing him to represent taxpayers before the IRS. He loves helping freelancers and small business owners save on taxes. He is also an attorney and works part-time with the Keeper Tax team.

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Note: at Keeper Tax, we're on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please reach out via email if you have questions.