The Dreaded Audit
Receipts shield you against auditors.
Auditors are in the business of figuratively 'busting' you on unreported revenue or illegitimate expenses. And they do this by scrutinizing every transaction on your books. There are two shields to defend yourself during this process:
- Your bank and credit card history.
- Your receipts, invoices, check images, and other supporting documentation.
It Doesn't End with the Bank
One of the common misconceptions is that bank and credit card transactions are enough. While the transactions certainly need to exist, in most cases it doesn't make the cut. The lead issue is the lack of detail. For example: a $300 Best Buy expense can be a computer monitor or a playstation. A $50 Amazon expense can be a printer cartridge or a pair of shoes.
For the average small business, expenses add up to tens of thousands, if not hundreds of thousands of dollars. The same can be said of startups and even freelancers (sole proprietors or self employed). This significantly reduces the amount of income you get taxed on. In the eyes of the auditor, across all small businesses, that adds up to billions in lost tax revenue if even a small proportion of that is deemed illegitimate.
Ensure the auditor "walks on by" - Keep those receipts!