Do Business Owners Need to Keep Receipts for Every Purchase Transaction?
This is a question I often get from newer business owners when helping them set up their QuickBooks Online accounts. The short answer is yes, but there are some important clarifications to consider. In today's digital age, we have a record of almost every transaction we make when paying by card or cryptocurrency (which I will expand on). However, when you pay with cash, there is no digital record of the transaction, so you must have physical proof of the purchase every time you use cash. I will go over each scenario below, so make sure to read until the end to fully understand how to handle and organize everything.
Bank, Debit, and Credit Card Transactions
These transactions will appear on your statements, including information about the vendor, store, or restaurant where the purchase was made. In most cases, this is enough to prove where and when the transaction took place, as well as what was purchased.
While I always recommend keeping all receipts, most business owners don’t do this, assuming that the bank statement is sufficient proof of purchase regarding who, where, when at a minimum.
If you use accounting software for your business and have your bank accounts linked to QuickBooks or Xero, you can categorize bank transactions as they appear.
Cryptocurrency Transactions
When paying with cryptocurrency, things get a bit tricky because it can be difficult to know where and for what the transaction took place. In most cases, the available information will include:
The sender’s wallet address
The recipient’s wallet address
The transaction hash
The date the transaction occurred
All of this information is public, but when using crypto, you need to track both what you purchased and the value of the cryptocurrency at the exact moment it left your wallet.
What does this mean? You need to screenshot the transaction immediately after receiving confirmation in your sending/receiving wallet. Waiting even a day can cause problems since the value of crypto can fluctuate by 10-20% or more, which can complicate your tax liability when you exchange it for cash. Multiply this across hundreds or thousands of transactions, and it becomes a costly issue.
Let me tell you, filing taxes with multiple crypto transactions, wallets, and exchanges can get expensive really fast. Often, you'll need to outsource this task due to the time it takes to verify and reconcile everything—IYKYK.
While many popular exchanges keep records and send end-of-year statements, not all do. This becomes especially important when using custodial wallets that aren’t tied to exchanges.
Cash Transactions
If you make a purchase with cash, you must have a receipt to write off and categorize the expense when filing your taxes. In the case of cash transactions, the receipt is the only proof that the transaction occurred.
Whenever you pay cash for something, immediately take a picture of the receipt and, if possible, have it sent to your email. I also recommend keeping a physical folder of receipts. If you have a QuickBooks Online account, you can email receipts directly to the account and manually create an expense transaction with the receipt attached. You might think this is overkill, but it's always a good idea to cover your bases. Once you make it a habit, it will feel routine.
Tracking and Organizing Your Expense Transactions
I recommend tracking your receipts in the following ways:
Cloud Storage: Use Google Drive, Dropbox, or OneDrive to store all your receipts. Organize them into month/year folders, so you always know where to look. Create a system for naming your receipts to make them easy to search for.
Physical Storage: Keep a folder of physical receipts and make notes on them about where and why the transaction occurred.
Bank Statements: Organize bank statements in your preferred cloud storage. Some banks only keep statements available online for six months, so make sure to download older ones or request them from your bank.
Accounting Software: Use accounting software like QuickBooks or Xero to record all your expense transactions. These tools make it easy to attach receipts and properly organize your business finances.
*Crypto specific: Create a Google/Excel sheet that you keep organized with the following columns: transaction description, amount in dollars, amount of crypto, date the transaction took place. Again, recorded and tracked with a screenshot IMMEDIATELY after the transaction is confirmed.
Cases Where You Always Need a Receipt
Getting slight bit off topic, you should always keep a receipt for any large purchases or fixed assets, such as:
Property and land
Buildings and office spaces
Machinery and equipment
Vehicles
Furniture and fixtures
Computers and IT infrastructure
You need receipts for these larger purchases so they can be depreciated and recorded correctly. For purchases over $500, ask yourself, "How long will I use this?" If the answer is longer than 12 months, it likely needs to be depreciated and written off differently from normal expenses (under $500). I also recommend keeping separate folders for fixed assets to make them easier to search for.
Multiple Expense Categories in One Purchase
Let’s say you go to Best Buy and spend $4,600 on multiple business items. The purchase shows up in your bank account as one lump sum, but you bought a computer for $4,000 and several smaller items totaling $600. In this case, you'll need the purchase receipt. Your bank account won’t show the individual line items.
The computer is considered an asset and needs to be depreciated according to its planned lifecycle. The smaller expenses can be categorized as office supplies or another appropriate category.
In this case, the purchase receipt is essential because of the different types of items listed on it.
To Conclude
I hope this answers any questions you might have about expenses and how to track them. If you think there was something I did not cover or you have a question, you can send me an email at richard@diamondbackbookkeeping.com.
Related articles:
https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-records-should-i-keep