In this video, Melissa Honan, CEO of Bookkeeping for Painters, explains why keeping itemized receipts is essential for audit‑proofing a painting business. She outlines how the IRS requires proof of purchase for business expenses, noting that bank statements alone are insufficient and that missing receipts can cause personal expenses to be taxed at higher rates. Honan discusses the risk that a single missing receipt can lead the IRS to treat all purchases from a vendor as personal. She then offers practical receipt‑management strategies, recommending the Dext app for photographing and storing receipts, as well as alternative methods such as uploading images to cloud services (Google Drive, Dropbox), using a desktop folder, or even storing physical receipts in a shoebox. She emphasizes the importance of retaining receipts for up to seven years to comply with audit requirements.
Chapters
Hi, I'm Melissa Honan. I'm the CEO of Bookkeeping for Painters. Today I have some financial tips for your painting business. People ask me this question a lot: what is the best way that I can audit-proof my business? And I have the answer for you: keep your receipts. Keeping your receipts is, is really important in case of an audit. If you're going to be audited, the IRS is going to ask you for proof of purchase. And even though bank statements are good for categorizing your transactions, they are not proof that a purchase was for business expenses because you don't see what you actually bought. Um, you see the total amount on your bank statement, but you don't have an itemized list of the items that you purchased. And that's what's important here for proof of business purchases, especially with vendors like Amazon, Walmart, your big box store where you could buy almost anything, you need proof that what you purchased could be considered a business expense. Um, not an Xbox, a PS4, whatever it might be that you're actually purchasing from those places. Um, it's really important for you to be able to prove those purchases are business expenses, uh, because if you don't have the receipt, the IRS will assume that it was a personal expense, and then that will be considered, uh, personal income. For yourself and you'll be taxed at a higher rate. And if you don't have a receipt for one purchase from one of those vendors, they're go— they can assume that all of the purchases that you made at that vendor are then personal expenses, even if some of them were business and some of them were personal. So it's really important to keep all of your receipts to essentially audit-proof your business. I totally understand that it's really easy to lose receipts. I am the type of person where I, first of all, I don't want the receipt. And if you give me a receipt, I'm gonna immediately throw it in the trash. There are apps to help you with this. We really like using the app Dext. It's a receipt management system and you can download the app on your phone, take a picture of the receipt as soon as you get it, and then throw the receipt in the trash. It's an app that you can have an app on your phone. Your team can, there's varying levels of security for Dext. Submit only so that they can't see things once you've submitted them if you wanna keep some of your personal information private from the rest of your team. And it's just very easy to use. There is also the option to scan and email in receipts, or you can just have like a desktop app and upload file attachments as well. So I do love a great receipt management system, but it's not necessary. It could be as easy as just taking a picture and uploading it to a cloud-based storage system like Google Drive or Dropbox, um, or honestly uploading it just into a file on your desktop. Um, as long as you're keeping your receipts, that's the important part. Even if you don't want to go cloud-based, if you are the type to just, let's put the receipts in a shoebox, that will be better than nothing. Uh, the important part is keeping those receipts and having them available in case you're audited. The thing here is that you can be audited for up to 7 years. That's a lot of shoeboxes, guys. So that's where the cloud is really important with unlimited storage. So no matter if you're purchasing an app or a service to take care of your receipts, or if you're using a free Google Drive, it's just important that you do keep those receipts for at least 7 years.
