Keeping Receipts for Taxes: Tips for Therapists and Dentists

As a therapist or dentist running a private practice, keeping track of your receipts is crucial for tax purposes. Effective receipt management can simplify the process of tax preparation for dentists and for therapists, ensure you maximize deductions, and protect you in case of an IRS audit. Here are some tips from Therapeutic Tax Solutions to help you keep your financial records organized and ready for tax season.

The Importance of Organizing Receipts for Tax Purposes

Why Should Therapists and Dentists Keep Receipts?

A major piece of accurate bookkeeping for therapists and dentists involves tracking receipts, for a number of reasons. First, receipts serve as proof of business expenses, which are essential for tax deductions. The IRS requires documentation for all deductions claimed on your tax return. Second, keeping receipts can help you track spending, manage your practice’s budget, and prepare accurate financial statements.  Third, having properly saved receipts throughout the year will make filing your income taxes much easier.  And last (but certainly not least), if you ever find yourself in a tax situation with the state or IRS, having receipts for your business tax deductions will alleviate some stress.

What Business Receipts Should I Keep for Taxes?

You should keep receipts for all business-related expenses. This includes office supplies, equipment, utilities, rent, professional development courses, and any other costs directly associated with running your practice. If you make any medical expenses for your practice, those receipts are also important.  Our years of experience as a bookkeeper for therapists and dentists, we can assure you that having a way to save these receipts in an organized manner will save incredible amounts of time and stress when tax season rolls around.

How Long Should I Keep Receipts for Tax Purposes?

The IRS typically recommends keeping receipts for at least three years, which is the usual period within which they can audit your returns. However, for certain deductions, like those related to real estate or depreciation, you may need to keep records for up to seven years. It's best to err on the side of caution and keep important financial documents as long as possible.

Tips for Organizing Tax Receipts

Organizing your receipts can be overwhelming, but it’s essential for smooth tax preparation for therapists and dentists in private practice. Here are some common tips that you, as a business owner, should consider implementing. 

Digital vs. Paper Receipts

While paper receipts are traditional, digital receipts are increasingly accepted by the IRS. Digital receipts are easier to store and manage, and they reduce the risk of loss or damage. Consider scanning your paper receipts and storing them digitally using cloud storage solutions.

Using Receipt Management Software

There are several receipt management software options available that can help you organize your receipts. These tools can automatically categorize expenses, match receipts with bank statements, and generate reports for tax preparation. Using software can save time, reduce errors in your financial records, and have you better prepared for tax time.

We recommend Dext because it allows you to snap a pic of your receipt from your phone (or forward it from an email). Dext keeps the receipts backed up into the system as well so you have your thorough audit trail in your account. The best part about Dext? It’s totally cloud-based, so if your computer crashes, you won’t ever lose all of that data and audit trail of receipts! We also really like how easily you can filter and search for receipts based on vendors.

If you don’t want to invest in a monthly subscription for something like Dext, then you could simply create a folder in your email, and file all receipts into that folder by year. Or you could create a Google Drive ‘Receipts’ folder and create sub-folders by year and file your receipts into the sub-folders. For both of these methods, you’ll still have to scan any paper receipts into your email and/or Drive folder, which will be more cumbersome than the ease of the Dext app, but at least you’ll still be maintaining a paperless office!

Setting Up a Filing System

Whether you choose digital or paper storage, setting up a filing system is crucial. Organize receipts by category and date to make retrieval easier. For paper receipts, use labeled folders or envelopes. For digital receipts, create clearly named folders and back up your files regularly.

Maximizing Deductions with Proper Receipt Management

The process of tax planning for therapists and dentists should include the development of a mechanism that helps you to manage receipts and understand all of the deductions that can be legally claimed on your tax return.

What Deductions Can Therapists and Dentists Claim?

Therapists and dentists can claim a variety of deductions to reduce their taxable income. Common deductions include office expenses, equipment purchases, professional dues, and continuing education costs. Properly documenting these expenses with receipts ensures you can substantiate your claims if questioned by the IRS.

How to Document Your Small Business Expenses

To document business expenses, make sure each receipt includes the date, amount, and nature of the expense. For meals and entertainment, note the purpose of the meeting and the attendees. Keep credit card statements and bank statements that correspond with your receipts as additional proof of payment.

Tracking Vehicle and Travel Expenses

If you use your vehicle for business purposes, you can deduct mileage or actual expenses like gas, maintenance, and insurance. Keep a mileage log and retain receipts for any vehicle-related expenses. For travel expenses, keep receipts for airfare, lodging, meals, and other costs incurred while traveling for business.

The Role of a Tax Professional

Working with a tax professional can help you identify all possible deductions and ensure your receipts are properly organized. Therapeutic Tax Solutions specializes in bookkeeping, tax planning, and accounting for therapists and dentists, and this includes helping clients manage their tax records and maximize their deductions.  We can provide valuable advice on complex tax issues and tax filing.

Should I Hire a Professional for Bookkeeping and Tax Filing?

Hiring a tax professional is beneficial, especially for busy therapists and dentists. They can save you time, reduce the risk of errors, and help you navigate complicated tax regulations. Therapeutic Tax Solutions offers tailored services to meet the unique needs of your practice, ensuring you stay compliant with tax laws and maximize your deductions.

What to Expect from a Tax Professional

We can assist you in a number of ways, including reviewing your financial records, identifying tax deductions, and preparing tax returns for therapists or dentists who are in private practice. We can also advise you on tax planning strategies and provide ongoing support throughout the year. With our expertise, you can focus on your practice while we handle the financial details.

Common Questions about Keeping Receipts for Taxes

Do I Really Need to Keep Receipts for Small Purchases?

Yes, even small purchases can add up over time and contribute to your total deductions. Keep receipts for all business-related expenses, no matter how minor they may seem. These small amounts can collectively make a significant impact on your tax return.

Can I Use Bank Statements Instead of Receipts?

While bank statements can support your claims, they are not a substitute for receipts. Receipts provide specific details about the purchases, such as the itemized list of expenses, which are necessary for proper documentation. Use bank statements as supplementary proof along with your receipts.

How Can I Ensure My Receipts Are Audit-Proof?

To ensure your receipts are audit-proof, keep detailed and accurate records. Make sure each receipt includes the necessary information and is stored in an organized manner. Regularly review and update your records, and consult with a tax professional to ensure compliance with IRS requirements.

What Happens If I Lose a Receipt?

If you lose a receipt, try to obtain a duplicate from the vendor. For smaller expenses, you may be able to use a bank statement or credit card statement as supporting documentation. However, it's best to keep meticulous records to avoid missing out on deductions.

How Often Should I Review My Receipts?

Regularly reviewing your receipts is crucial for maintaining accurate records. Set aside time each month to organize and review your receipts. This habit will make tax preparation easier and ensure you don't miss any deductions.

By following these tips and keeping your receipts well-organized, you can ensure a smoother tax filing process and maximize your deductions. If you would like to learn more and discover if our firm is a good fit for your practice, we invite you to apply to work with us and schedule an introductory meeting.  We’re here to help you manage your tax records effectively and efficiently!