Expense receipts: What counts as valid proof of purchase?

What is an expense receipt?

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

What can you use as a valid expense receipt?

An itemized receipt, invoice, credit card statement, or digital confirmation like an email or app notification can serve as valid proof of purchase for a business-related transaction. Because there are many types of work expenses, you can use a number of options as receipts for reimbursements or tax deductions.

For travel expenses, there are airline tickets, hotel bills, car rentals, mileage tracking reports for personal vehicles, and meal receipts. If employees are attending a conference, they might have receipts for the registration or event fees.

Other examples include invoices, purchase orders, and credit card and bank account statements that document various transactions. 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.

No matter the format, for a proof of purchase to be valid, 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

Why do you need receipts for expense reports?

Receipts serve many roles in business accounting. For starters, they verify an employee's expense claims to ensure they’re properly reimbursed for business-related spending. Requiring employees to attach receipts helps ensure every transaction complies with your company’s expense policies. This streamlines the process for expense reimbursement as well.

Beyond their role in expense reimbursement, receipts also 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.

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 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. It's all part of ensuring compliance with tax regulations and avoiding legal issues.

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.

That’s because auditors might want to look at financial records and receipts going back even further if they find significant accounting errors. According to the IRS, they usually won’t go back more than the last six years.

Other factors might influence how long a business should hold onto its receipts as well, like industry-specific regulations or legal obligations. Receipts related to contractual agreements, insurance claims, investor or lender needs, property purchases, or other company-specific issues must be maintained for the relevant durations, which could exceed seven years.

With that said, your paper trail need not be literally made of paper. Indeed, business owners don't have to keep paper copies of all those receipts going back years so long as they have digital versions, 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. Just make sure your preferred accounting software (QuickBooks, Excel, etc.) keeps this documentation secure.

How do you make your own receipt templates?

If for some reason you don’t receive a receipt from a vendor, or if the information on a receipt is illegible, you can make your own receipts for expense reports as needed. As you create your custom receipt templates, you'll want to include:

• The date of the transaction
• The amount paid
• A description of the item or service
• The name and location of the vendor or service provider
• The method of payment

Be sure to check whether your company or another governing body has additional requirements for the format or content of your self-generated receipt—or if they're even allowed in certain cases. These documents might be subject to greater scrutiny from the IRS, so triple-check that everything is clear, accurate, and legible on your receipt template.

In the case of cash payments, you might not receive an official receipt, 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.

What are the consequences of noncompliance?

When the IRS audits your business, they’ll 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.

Having an organized system with all business receipts allows you to provide the IRS with the evidence they need to review and check the accuracy of your claims. Once the agency examines the provided documentation, they may have follow-up questions for further clarification.

If an auditor finds errors or discrepancies, they may recalculate what you owe and impose penalties. You can appeal the findings if you disagree, in which case having organized business receipts will further come in handy to support the re-examination.

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
• 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.