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.

How Ramp can help automate receipt compliance

Tracking down receipts and ensuring they meet compliance requirements can feel like a never-ending game of cat and mouse. Finance teams waste hours chasing employees for missing documentation, manually reviewing receipts for IRS requirements, and scrambling during audits to prove expenses were legitimate. Meanwhile, employees struggle with keeping track of paper receipts, remembering to submit them on time, and understanding what information needs to be captured for compliance.

Ramp transforms this painful process with our modern expense management automation software. The platform's receipt matching technology automatically captures and attaches receipts to transactions, eliminating the manual hunt for documentation.

When employees make purchases with their Ramp cards, the system prompts them to upload receipts directly through the mobile app, using OCR technology to extract key details like merchant name, date, amount, and itemized information. This ensures every receipt contains the IRS-required elements for tax compliance, including transactions over $75 that need detailed documentation.

For expenses that don't originate from Ramp cards, the reimbursement workflow enforces receipt requirements before approval. Employees can't submit reimbursement requests without proper documentation, and the system flags any receipts missing critical compliance information. Finance teams can set custom rules requiring receipts for specific expense categories or amounts, ensuring nothing slips through the cracks.

The real game-changer is Ramp's automated expense categorization and coding. Instead of manually reviewing each receipt to determine the appropriate GL code or tax category, Ramp uses machine learning to automatically categorize expenses based on merchant data and past coding patterns.

This not only saves hours of manual work but also ensures consistent categorization for audit purposes. With all receipts digitized, searchable, and linked directly to transactions, you're always audit-ready without the stress of last-minute documentation scrambles.

Say goodbye to paper receipts

With Ramp, the days of chasing down lost receipts, bugging employees to submit their documents, and sifting through years of paper receipts are over. More than 40,000 businesses have saved 27.5 million hours by automating busywork with Ramp. What could your team do with that kind of time savings?

Try an interactive demo to learn more.