In the last part, we talked about proper documentation of business income and expenses. Nearly 100% of the time, the first question people ask at this point is: do I have to keep all that paper, or can I scan the receipts?
The answer is yes, you can scan your receipts and toss the paper. The IRS does have some surprisingly technical rules about this. In fact, back in the late 90s (1997 to be exact) the IRS issued a revenue procedure that laid out the rules. See Revenue Procedure 97-22, found on page 9 of this document.
Keeping scanned copies of documents is fine as long as the scanned copy is:
- In a typical file format that is easily opened (such as PDF or JPG)
- Legibly scanned (needs to be clear, and needs to be a complete copy of the original document)
- Easily accessible — a lot of people change computers every couple of years. If you’re scanning your receipts, make sure to copy the files to a flash drive or external hard drive so you can access them if needed.
In the next part, we’ll talk about bookkeeping systems, and I’ll talk about whether it’s a good idea for business owners to keep their own books.