Are Receipts Obsolete if You Use a Scanner?

It's a family child care provider's worst nightmare: You are in an IRS audit and the auditor asks to see your business receipts. As you pull out your receipts, you discover that the ink on all them has faded and the pages are blank!

The auditor is not amused. Is your situation hopeless?

Not if you had scanned your receipts into a scanner and can display your records on a computer or print them out.

Child care providers are required to save their tax records for at least three years after filing their tax return (employment records must be saved for four years). Some states require you to save your records for longer than three years. 

I previously wrote an article ("The Case of the Fading Receipt") discussing ways to preserve receipts when they don't last three years.

A growing number of child care providers are using a scanner to save and organize their records. A scanner allows you to scan your receipts into your computer, by saving the image of your recipts. You can then sort these records on your computer by putting them into different business categories (parent payments, toys, supplies, utilities, etc.). Using a scanner will not allow you to divide one receipt into two categories, so it's not a perfect way to organize your records.

If you scan your receipts, do you still need to save the hard copy for three years? No.

IRS Revenue Procedure 97-22 says you can throw away records after you have scanned them into your computer. You will need to be able to produce your scanned records at an audit. I recommend saving your scanned records on a flash drive and storing your flash drive in a safe place (such as a safe deposit box).

If you use a scanner, be careful not to throw away receipts until you are positive that they are properly scanned and saved on your computer. Note: some states may not accept scanned records, so check with your state department of revenue before throwing away the hard copies your records.

There are a number of scanners on the market. Amazon.com lists many (called NeatReceipt or ScanSnap), most of whom cost less than $200 (deductible!).

Do you use a scanner, and if so, how satisfied are you with it?

Image credit: www2.nkfust.edu.tw

For more information about record keeping, see my book Family Child Care Record Keeping Guide.

Comments

[Debbie]

what if your reciept needs to be devided into several catagories? Is it ok to scan it multiple times and put the right amount in the catagories or is it better to ring the items up separtly at the store?

[Tom Copeland]

Scanners don't allow you to separate individual receipts into more than one category. Scanning multiple times will only give you higher expenses in two categories that aren't accurate. Ringing up items into separate receipts helps some, but most expenses are both business and personal (cleaning supplies, etc.), so even that isn't perfect. Look at scanning as a way of saving records, not organizing them.

[Wren]

I have receipts that are 7 years old. I store each month in an envelope, then the envelope in a plastic storage bin in the dark attic. They have held up just fine so far.

That said, since I started day care last year, I think the chance of an audit is higher than my previous business, so I've started backing them up, not so much against fading but against fire or tornado. I put as many receipts as I can on the scanner bed and scan them. Then I print out the page as well as save it to my computer. I highlight and note the deductible items and their category. The originals and the print out go with my tax records. I use carbonite to back up my computer files, so even if my records and computer burn down, I have the records stored online. It just takes a few minutes at the end of the month to scan the receipts. Many places are now using really long receipts with paragraphs about surveys or future sales. I fold the receipts so that this stuff is hidden and I can get more on the scanner bed.

[Barbie]

I have a scanner that I've just started using. For receipts that have more than one catagory of expenses, I either put it in the catagory with the largest expense or I've made one catagory 'Kroger receipts' b/c that one often has shared supplies and 100% child care supplies (like baby wipes). I see it the same as when I store the original receipts...they have to go somewhere and hopefully I'll find all the right ones if I'm audited. And while the scanner program will automatically put in the total amount from the receipt, you can change that if it's not all child care expenses.

[Julie]

I have the neat receipts one, You can change the amount and make notes on the receipt...I am still getting use to it so I do really only use it to "save" my receipts...not easy to organize...would be easy if you were to buy your items in 3 different categories, Personal, Shared, and 100%..and if you do it ACTUAL use....then it would be a matter of just putting them in files of what your expenses are....HEADS UP though...I purchased mine 3 years ago, I back my files up, and was able to pull the files up on my flash drive, but my hard drive crashed, and I tried to pull the files up on a new computer and it was not there...lucky I had all of my hard receipts still but if you do this try to pull up your backed up copies on another computer also!

[Jeannie Peoples]

I have the Neat Receipts, It is a little harder to work with but once you get used to it, there are alot of different things you can do with it. once you put the items into a category, then you can split the receipt and put it in more than one category, You just put the different amounts for each item, also at the top of all my receipts i have written on them before I scan them, so all the amounts are already seperated and each item is marked beside it where is goes to shown exactly what each item if for. I also do seperate my stuff at the stores as much as possible, I always put my food on first , then have the cashier sub-total and it shows up on the receipt, then she does the remainder of my items. I hope this was very helpful, It definetly was to me, As I have been under an Audit, for a while now, and the Auditor would not accept my receipts , because they were not organized, so at first she has dissallowed all my expenses, then we put it all on the neat receipts and sent in the flash drive. All completly organized. Not sure of the outcome at this time.

[Cate]

I have a Canon 8800F which is a flatbed scanner. It's fine for scanning receipts, but not in great quantity. Still, I love having a scanner available for scanning all of my tax documents so that I have an electronic backup.

[Stephanie]

I've never scanned files but I think I will start! For those who have and are concerned about backing up files, I use Carbonite to back up all my files. I have lost 2 hard drives in the last 4 years and didn't lose any files or photos. I think I'll start scanning in my files. It will take much less space than my current method!

[Dawn Wahl]

Neat Receipts does allow multiple categorization of one receipt. This may be a new feature, and it also is a bit hidden. It's a multiple step process and I use it only when it's totally necessary, but it can be done so that in the database I can find the same receipt when sorting by different categories.