Expense receipts: What counts as valid proof of purchase?

Managing employee expense reports has become a common practice for businesses. Because as much as you would like to keep spending contained, there are simply times when it makes sense for your employees to make purchases on behalf of the company.

And the key component to these reports is the expense receipt. Expense report receipts keep everyone honest and provide the documentation you need to manage expenses.

In this article, we break down the types of expense receipts you can use as proof of purchase for reimbursement and tax purposes. We'll also outline best practices for generating your own receipts and automating expense receipt tracking to improve efficiency.

What is an expense receipt?

An expense receipt is a document that serves as proof of purchase for a business expense. If an employee makes an out-of-pocket purchase on behalf of the company, they need to submit an expense receipt to be reimbursed. The receipt should show the date, vendor, purchase price, and description of what was purchased.

Why are expense receipts important for expense reports?

Receipts serve many roles in business accounting. These are just a few reasons why you should require receipts as part of your expense reporting process:

• Proof of an expense for reimbursement: For starters, receipts verify an employee's expense claims to ensure they’re properly reimbursed for business-related spending
• Compliance and fraud protection: Requiring employees to attach receipts helps ensure that every transaction complies with your company’s expense policies and reduces the risk of expense fraud.
• Budgeting & financial planning: Beyond their role in expense reimbursement, receipts include useful details about business expenditures, such as dates, prices, items purchased, and more. This information is essential for your company's recordkeeping, future financial planning, budget allocation, and tax filing.
• Recordkeeping & audit protection: Expense receipts are especially important in the event of a tax audit because they serve as documentation for your tax deductions. They provide a paper trail for the IRS receipt requirement to verify that the business expense deductions you claimed on your tax returns are legitimate.

The risk of an audit or lawsuit is a major incentive to develop an organized system—particularly one with accounting software integrations—for collecting and maintaining receipts. This ensures compliance with tax regulations and avoids legal issues.

What can you use as valid proof of purchase?

Because there are many types of work expenses, you can use a number of options as receipts for reimbursements or tax deductions. Valid proof of purchase for business-related transactions can include:

• Itemized receipts
• Invoices
• Credit card or bank statements
• Digital confirmations, like emails or app notifications
• Packing slips or delivery confirmations
• Purchase orders

These could be either physical paper receipts, e-receipts, PDFs, or emails. The easiest way to keep track of all these different receipts is to use an automated receipt scanner app, like the one that comes standard with Ramp.

Additionally, for travel expenses, an airline ticket, hotel bill, car rental invoice, mileage tracking report for personal vehicles, or meal receipt would all qualify as a proof of purchase receipt. If employees are attending a conference, they might have receipts for the registration or event fees.

What should be included on an expense report receipt?

No matter the format, for a proof of purchase to be valid and be ready to submit for an expense report for reimbursement, it should show the following details:

• The name of the vendor, supplier, or service provider
• The date of the transaction
• An itemized list of the items or services purchased
• The cost of each item or service
• The total amount
• The payment method you used for the transaction

How long do you need to keep receipts?

US business owners should save expense receipts for at least as long as the IRS can audit their records. Because an audit can include tax returns filed within the past three years, you should hold onto expense receipts for a minimum of three years. However, many experts recommend keeping receipts and other documentation for seven years.

Tips for receipt expense management

When the IRS audits your business, they typically ask for certain documents, like expense receipts. These records are necessary to substantiate your company's income, expenses, deduction claims, and other financials reported on your tax returns.

Here are a few tips for managing your expense report receipts to stay ahead of an audit:

1. Stay organized: Keeping organized business receipts isn’t just helpful for compliance with the IRS, but also helps you manage your budget and finances properly. A proper filing system will do the trick at first, but as your company grows, some kind of tool probably will do better.
2. Digitize your receipts: Your paper trail doesn’t need to be literally made of paper. You don't have to keep paper copies of all those receipts going back years so long as you have digital receipts, such as e-receipts.There are many ways to upload receipts and store them digitally, which makes it easier to present financial records in the event of an audit.
3. Automate the process: Bringing on an automated expense management tool will save you time and money in the long-run. Automating the process begins with receipt scanning, which automatically digitizes your receipts and can even track expenses automatically from there. With Ramp, receipt integrations can help avoid lost receipts and sync them immediately so employees don't have to take that action.
4. Categorize expenses: As receipts come in, make sure to categorize your expenses so that you’re sure you’re keeping proper documentation. For example, business travel expenses are not the same as purchasing office supplies, and require more detail. An expense management platform can do this for you automatically.
5. Manage cash payments: You might not receive an official receipt for cash payments, so creating one yourself is the only way to document the purchase. Add as many details as possible, including contact information for the payee, clear descriptions of each item or service, dates and times, and anything else that seems relevant. In general, keep close track of how you use cash for business purchases, as these types of payments can cause challenges in the auditing process.
6. Conduct your own audits: Regularly keep an eye on your expenses, and particularly your receipts. If you’re auditing yourself on some regular cadence, you can make any adjustments to company policies and ensure you have all the proper documentation on file.

Automate expense receipt tracking with Ramp

Keeping track of expense receipts can be a big hassle, especially for small business owners who have to maintain, review, and confirm all that documentation themselves.

Ramp’s expense management software can help solve the challenges of managing expense receipts, empowering you and your employees to:

• Capture digital copies of physical receipts and integrate with tools and vendors your team already uses like Gmail, Outlook, Uber and Amazon Business
• Submit e-receipts via email or text
• Report expenses on the go via Ramp’s mobile app
• Accurately code, categorize, and map expenses

That means no more chasing down lost receipts, no more bugging employees to submit their documents before tax time, and no more sifting through years’ worth of paper-based proofs of purchase.

On top of that, Ramp’s all-in-one finance platform makes it easy to issue unlimited physical and virtual corporate cards that can help eliminate the need for frequent expense reimbursements.