Should You Keep Your Tax Receipts?

Should You Keep Your Tax Receipts?

So you’ve scanned your receipts, organized the PDFs, and made sure everything is backed up. Is it safe to shred the paper?

The first thing you should do in answering this question is to consult a tax professional in your jurisdiction. Every tax jurisdiction has its own rules, and you want to make sure that what you read online is applicable to where you live.

What DocumentSnap Readers Do

When I ask DocumentSnap readers and people at events what they do, the responses I get are all over the map. Some people scan and shred everything, and others hold on to all the paper. Others are somewhere in between.

What The IRS and CRA Say

I highly recommend you read this article by Laura Kenway called Can You Shred Your Scanned Receipts?

She breaks down the difference between the IRS regulations (United States) and CRA (Canada).

For example, you can read about the IRS in their Proc 97–22.

In Canada, you can read this document: Acceptable format, imaging paper documents, and backing up electronic files.

The tricky part is with the interpretation of these materials. In fact, I have heard of people receiving different answers from CRA representatives depending on who you talk to.

Some sources say that you should keep the original source document, and some say that the electronic version is acceptable.

What Does Brooks Do?

At conferences people call me “Mr. Paperless”, so it surprises some people to hear that I personally keep all my tax related paper.

I scan, organize, and back it up, but then I keep the paper filed away. Why?

I figure with tax related stuff, it’s better to be safe than sorry. The last thing I need is some auditor having a bad day and looking for things to question.

Why Bother Scanning Then?

You might say “if you’re keeping the paper anyways, why bother scanning it in the first place?”

For me, going paperless is not about the elimination of paper. It is having things organized electronically to make me more productive. If I have the documents scanned, named well, and searchable, I can instantly retrieve any document I need right when I need it.

In her article, Laura Kenway says it well:

You are probably thinking, “So why bother to scan?” Two words … Audit Proof … or Audit Ready.

Wouldn’t it be great to have all your original source documents boxed in storage? If you get audited, you are ready.

In the meantime you have the convenience of not dealing with paper when you look something up. I personally think it is easier to search my computer than a box of paper.

I totally agree.

What Do You Do?

So what do you do with your tax receipts? Do you keep the paper, or do you scan & shred?

Have you ever actually been through an audit with electronic documents? How did it go? Leave a comment below.

About the Author

Brooks Duncan helps individuals and small businesses go paperless. He's been an accountant, a software developer, a manager in a very large corporation, and has run DocumentSnap since 2008. You can find Brooks on Twitter at @documentsnap or @brooksduncan. Thanks for stopping by.

Leave a Reply 4 comments

Mike - September 30, 2015 Reply

My accountant (in California) said that he had never seen any problem with scanned receipts. So, I scan and shred most receipts that are tax related.

Consider: All of the statements from my stock brokerage account are already electronic, because I participate in paperless statements. Obviously, I can’t save paper copies of the statements unless I print them, which would be ridiculous. So, the IRS is already accustomed to dealing with digital documents.

    Brooks Duncan - October 1, 2015 Reply

    Yeah. Here in Canada the key (for now) seems to be having them available in their original form. If they originate electronically, that’s great. Definitely no need to print them out (unless you have a cranky auditor).

Samuel - September 16, 2015 Reply

Where I live (Israel) we are required to retain paper tax documents for seven years, except for electronic documents digitally signed by an authorized body, which can be retained in digital form.

More and more companies are shifting over to issuing digitally-signed invoices, making it easier to transition to paperless retention to a great extent. But like Brooks, we too will have to continue retaining hard copies of non-digitally-signed tax documents.

    Brooks Duncan - October 1, 2015 Reply

    Thanks for the report Samuel!

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