The Proof In The Pudding or In The Trash?

“Do You Want Your Receipt?”

When the cashier asks you that question – the answer is YES! 

While we don’t actually need all receipts, I have “never” seen anyone upset because they had a receipt and did not need it.  However, I have seen many cases where people who did not have a receipt they needed were totally screwed!

KEEP ALL RECEIPTS!  “Keeping records is very important” as they document certain events or expenses that provide proof for something that can have a major effect on our life. An IRS audit is a perfect example, but there are many more reasons. 

Depending on what something is documenting reflects the length of time you should retain a document. It becomes confusing when this item you need to keep the receipt for this amount of years and that item for a different amount of years. Who can keep track?

Unless you have an excessive amount of records, I don’t know anyone who wants to nit-pick through their records regularly and say, “Okay – it has been __ [number of] years so, now I can get rid of this receipt.” 

Maybe you should set a timer?  Or why not just play it safe? Error on the side of caution and “keep all your documentation!” Then you have no worry. It is peace of mind. Keeping your receipts is like a good cheap insurance policy.

Here is a good guideline. 

If you have filed all tax returns timely, I feel it is safe to keep the majority of your records for seven years with the exceptions of the following, which you should keep permanently.

If you have not filed your tax returns timely, I would keep everything for seven years or four years prior to the last filed tax return, whichever is longer plus the exceptions listed below. 

EXCEPTIONS that need to be kept longer than seven years:

BUSINESSES: Each business should consider unique situations that may affect the holding period of records due to the unique standards of your given industry. 

BUSINESS ASSETS – Keep documentation seven years after the property has been disposed of, and taxes have been paid. 

CONTRACTS AND LEASES (still in effect) – Permanently

INCOME TAX RETURNS – Permanently. 

INSURANCE POLICIES – (still in effect) – Permanently 

INVESTMENT SALE & PURCHASE CONFIRMATION RECORDS – It is VERY IMPORTANT to keep purchase confirmation records three to six years after the investment is sold as evidence of cost. 

MEDICAL RECORDS – Permanently 

MILITARY PAPERS – Permanently (may be required for possible veterans benefits) 

RETIREMENT ACCOUNT RECORDS – Permanently 

PASSPORTS – Until expired. 

PERSONAL CERTIFICATES (Birth/Death, Marriage/Divorce, Religious ceremonies) – Permanently 

REAL ESTATE DOCUMENTS – Keep seven years after the property has been disposed of & taxes have been paid. WILL – Keep current Will permanently. Keep until rendered obsolete (replaced by a new version). 

For what the IRS has to say about record retention, be sure to visit www.irs.gov.

If you don’t have a business, why should you keep your receipts? Because life happens. I have seen many people who need to produce a receipt due to an unexpected insurance claim.  Or maybe you decide to start a business and need to convert that desk and computer to your business use.  Your receipt will help you prove and allocate the tax deduction properly.  You think there is no way you need that receipt, but as soon as you don’t have it – that unexpected and imperative need arises.   

If you have purchased a warranty, I highly recommend a designated file where you have the warranty paper and the receipt together in case of a warranty issue.

If you have a business, you definitely need to keep all receipts! This means the receipt itself and the corresponding bank or credit card statement. You should document your meal and entertainment receipts with who was present and the intent of what your business purpose was that makes the event deductible.

Most of the deductions lost during an audit are due to a lack of proper documentation. You can never have too much documentation. Start now and from this moment on – keep every receipt, even the minor ones. If deductible, that measly $3 receipt could possibly save you $1 in taxes.

It is best to have at least a simple bookkeeping system to organize them, or you can go paperless with one of the software programs that will scan and file your receipts (this will help preserve those receipts that fade).

Whatever you do, KEEP THAT DOCUMENTATION!  Maybe you did not know the expense is tax-deductible, or you experience life changes, or even sometimes the tax law changes, and now it is a tax-deductible expense.  This will validate your deductions on your tax return in case the IRS decides they want to take a look at your records. A wonderful bonus to keeping the receipts for the taxman is when you need the receipt to return an item purchased, you can actually find it.  If the item you purchased turns out to be a bad buy, then you will have the proof you need to return or exchange it; otherwise, you would just be stuck!

AT THE VERY LEAST:  Even if you don’t have to do anything with your receipts but keep them in the proverbial box, Keep them!  You will find that the shoebox of receipts can literally become money in your pocket!