To better understand the relationship between documentation and small business taxes, let’s review a scenario that happens on college campuses around the nation every day. A student boasts about an amazing experience, such as sharing a hot tub with Chris Hemsworth on a spring break trip to Cancun. The student’s friends listen with suspicion, then 1 of them demands, “Let’s see the receipts!” No, this inquisitive friend isn’t looking for a printed receipt of the alleged encounter with Thor. What they want is proof. A photo would be ideal, but they’d also accept a tweet from Hemsworth where he mentions that he recently shared a hot tub with an awesome college student in Cancun. Short of these types of evidence, the amazing story might lose its luster. And the student might also lose credibility amongst their friends. The IRS takes a similar approach to the stories you tell in your tax filings. They’re happy to read all about the amazing deductions you’re claiming, but they’ll follow up with the same demand: “Let’s see the receipts!” If you have proper documentation, your tax filing will get the green light from the IRS. When it’s absent, you can have a real problem on your hands. Collecting and Storing Your Documents So how do you preserve the right documents to support your tax claims? The IRS takes a flexible approach to this issue and considers a digital version of a document just as legitimate as a paper copy. “You may choose any recordkeeping system suited to your business that clearly shows your income and expenses,” explains a tax resource on IRS.gov. “The business you are in affects the type of records you need to keep for federal tax purposes Some businesses choose to use electronic accounting software programs or some other type of electronic system to capture and organize their records.” Examples of the types of records you should save include invoices, receipts, deposit slips, sales slips, or paid bills. The details on these documents should always correspond with the records you’re keeping in your books. Would You Like That Receipt in Paper or Digital? The traditional method for preserving documentation has always been based on hard copies. When done well, you’d have a robust folder of printed records in your filing cabinet. More commonly, you might have a shoebox stuffed with random receipts stored on the top shelf of your closet. Paper records are fine, but they have their limitations. For starters, they can easily become lost, damaged, or illegible (the ink on some of my business receipts from 2017 is already starting to fade). On top of that, paper records are only accessible from 1 location, and you need to be within reach of your shoebox to view them. As the IRS explained in the quote above, it’s absolutely fine to use accounting software to store digital records instead of keeping paper versions. No more lost documents, access limitations, or shoeboxes filled with jumbled papers. By digitizing your small business records storage, you can make your life easier and any future dialogue with the IRS more streamlined. Who knows? You might even be able to use 1 of the documents to provide “receipts” for your next amazing story to your friends.