How to organize receipts for taxes when you're self-employed

Receipts are the evidence behind every number on your tax return. A deduction without a receipt is a deduction you may have to give back in an audit. Yet most self-employed people keep them the way everyone does: a shoebox, a drawer, a folder of photos, a stack of emails, and a bad weekend in April.

Here is what the receipts need to show, what the IRS accepts, how long to keep them, and a way of keeping them that takes a few minutes a week.

What a receipt has to show

The IRS wants records that show what you bought, when, from whom, and for how much. For most receipts that’s printed on the slip: the shop, the date, the items and the total. Two kinds need a note from you:

Meals. Who was there and what the business purpose was. Write it on the receipt or in the note when you file it. Meals are only 50% deductible, so the amount matters twice.
Mixed-use things. A phone plan or a laptop used for work and for home. Note the business share and how you arrived at it.

For travel, you need the receipt for anything $75 or more; below that, the IRS accepts a log entry, though a receipt is still the easier proof. Lodging always needs a receipt. Credit-card statements show that you paid, not what you bought, so they back up a receipt rather than replace it.

Yes, photos are fine

The IRS has accepted electronic records for decades (Revenue Procedure 97-22 sets the rules). A clear photo or scan of a paper receipt is a valid record, as long as it’s legible, you can find it when asked, and it stays intact. Thermal paper fades within a year or two anyway; a receipt photographed on the day will outlast the original.

Two things the IRS does expect of an electronic system: you can produce a legible copy, and the records are complete. “I have photos somewhere in my camera roll” meets neither.

How long to keep them

The general rule is three years from the date you filed the return, which is the window the IRS has to audit it. It stretches to six years if you under-reported income by more than 25%, and there’s no limit if a return was never filed. Records for property (equipment, a vehicle) are kept until three years after you dispose of it, because they prove the cost basis.

In practice: keep every year’s receipts for at least seven years, and keep them with the year’s return. If storage is cheap, don’t delete anything.

The habit

Sorting a year of receipts is miserable because every one of them asks three questions at once: what was it, which business, which category. Answer them on the day instead, and there’s nothing to sort.

Photograph it when you get it. At the counter, in the car, before it goes in a pocket. Ten seconds. If it’s an email receipt, save it or forward it to wherever your receipts live.
File it in the same motion. Business, category, done. If you run more than one business, this is the step that matters most; a receipt that could belong to either is a receipt you’ll argue with yourself about in April.
Once a week, clear the pile. Anything you didn’t file on the day, the statement lines that have no receipt, the subscription that renewed. Fifteen minutes on Friday.
At year end, close the year. Check that every statement line has a matching entry, that the meals have their notes, that the equipment receipts are there, then stop changing it. Hand the whole year over as one folder.

The habit works with any system: a folder per year with a photo per receipt and a spreadsheet, or an app that does the filing. What doesn’t work is deferring the three questions.

What Plainbooks does with a receipt

Plainbooks is built around that habit. Photograph a receipt and the phone reads the shop, date and total; the app suggests the business and the category with its Schedule C line; you check and save. The receipt is filed under that business and year with the photo attached, searchable by the text on it. Meals carry their 50% rate. At year end you lock the year and export it: the profit and loss, every transaction as a spreadsheet, and, if you turn it on, every receipt photo, named by date, shop and amount, in one folder for your accountant.

Nothing about the habit needs the app. The app just removes the reasons to skip it.

How the categories map to the form: Schedule C expense categories, line by line. What to hand over in January: What to give your accountant.