How to set up an electronic filing system

Receipts to electronic filing system
Turn your receipts into an electronic filing system

What kind of filing system do you have in your business? Many business owners I meet have a stack of receipts and other documents like the one above.  They have shoeboxes that are full or filing drawers bursting at the seams. They are desperately holding on to that thermal paper receipt from that business lunch they had with a client.  Even if that lunch was in 2000 they can’t bring themselves to shred those documents.  What if the IRS audits them? What they don’t realize is that thermal receipt has probably faded to nothing over the years.  It may be completely unreadable at this point and useless in an audit anyway.  There is a simple solution but one that many business owners are reluctant to take.  In this article, we will cover the setup of an electronic filing system.

IRS Ruling on Electronic Receipts

Do you know when the IRS first began accepting electronic receipts as sufficient backup in an audit? They first issued Revenue Procedure 97-13 in March of 1997 … yes, 1997!! The section that deals with giving guidance to taxpayers that use an electronic filing system begins on page 9. You’re welcome, I wouldn’t stick you with reading all 36 pages to find the part that’s relevant to this blog post.  The Revenue Procedure lays out in great detail exactly how an electronic filing system should be set up.  The short description is that the electronic receipts must be materially the same as the originals, must be legible and must be readily accessible if requested by the IRS.  For more guidance about what kind of records you should be keeping, go here.

Electronic Filing System

For our files, we use DropBox. But really, just like in a physical paper-based filing system, use whatever works best for you.  If the electronic filing system doesn’t fit the way that you work, you won’t be able to readily retrieve information if requested.

  • We suggest that you set up a folder for each year that you are keeping electronic records
  • Within each of annual folders set up a folder for each month
  • File all receipts and other documents in the appropriate month for when the expense or revenue was incurred.
  • See our blog post on Commonly Used Business Deductions to determine which receipts you will need to keep electronic copies of
  • You can also keep copies of checks and deposit slips for revenue received.  Most banks will only keep records online for a limited amount of time.  It is smart business to keep your own copies for reference
  • Download any electronic receipts that you receive (bank statements, credit card statements, email receipts, etc) and file them in the appropriate folder
  • If you have physical receipts you can either scan them yourself or you can pay a service like Shoeboxed to do it for you.  For a monthly fee, they send you an envelope that you put all of your physical receipts in.  Then they scan them and send you notification that they have been added to your account.  They offer storage as part of the monthly fee, or you can download the scans to your own electronic filing system.

If you are like me and you hate paper, an electronic filing system may be the way to go.  With an electronic filing system, you may find that your receipts and other business documents are actually easier to access when you need them.

 How to set up an electronic filing system

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