Filing small business taxes usually involve a lot of work. It could take anywhere from couple of hours to several days depending on several factors such as the size of your business and how organized you were throughout the year in tracking your earnings and spending.
After you have filed your business taxes (and the manner in which you filed them), the IRS requires you to keep proof of expenses for several years. Proof is usually in the form of a sales receipt. Without adequate records, a tax audit might result in financial penalties. Although the IRS doesn’t require you to show receipts for expenses under $75, most businesses still keep them to avoid getting into any costly arguments with the IRS.
In the past, businesses relied on filing cabinets or shoe-boxes to keep their receipts. To this day, many businesses operate this way, even printing their electronic receipts to be kept in meticulously marked folders. Unless you have a bullet proof storage system in place, this approach has some inherent risks such as theft, losing stuff during moves, fire or flood damage. Another common problem with paper receipts from regular retail printers is that they start to fade away after some time.
IRS realizes that keeping boxes or folders full of paper receipts can be painful. So since 1997, they have been recognizing digital or scanned copies of receipts as proof. From IRS Revenue Procedure 97-22:
…maintain books and records by using an electronic storage system that either images their hardcopy (paper) books and records, or transfers their computerized books and records, to an electronic storage media, such as an optical disk.
To put it very simply, the rule means that you can scan or take a photo of the paper receipt and toss away the original. In the event of an audit, scanned copies or photos of the receipts will be accepted. However, there are two caveats. 1) you need to make sure that the photo is identical to the original receipt. In other words, take a good picture of the entire receipt and make sure it is legible. 2) you must store the scanned copy of the photo of the receipt somewhere very secure and make sure regular backups are taken. Storing on the hard drive of your laptop or leaving the photo on the mobile phone is risky since your data could become corrupted or even worse, the device can be physically damaged or become lost.
IRS recognizes and will accept scanned or photos of receipts in the event of an audit. You can scan or take photos of receipts and throw away the originals. Make sure you store the photos securely and take proper backups to protect yourself from data corruption or physical failure of devices.
Disclaimer: We are not tax professionals and cannot give tax advice. So please check with your accountant, CPA, attorney or tax professional.