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Official Receipts: What Are They?
An official receipt has many names depending on who you ask. Some people call it a cash receipt or a payment receipt. But whatever this small piece of paper is called, it serves a single purpose. The main reason why a receipt is printed is to produce hard copies of financial transactions to be used by businesses for tax and accounting procedures. Furthermore, receipts are used as proof of income received throughout the year. Because of that, receipts are easily considered as official tax documents. While invoices are only used in accrual-based accounting, they are not used during tax season because invoices just indicate that a value is owed than being received.
The Turbo Tax suggested keeping the receipts of the following expenses if you want to lower taxable income and increase your potential for a tax refund: medical, childcare, unreimbursed work-related, self-employment, and other expenses.
Meanwhile, the tax crimes investigated in 2019 were more than 1700 while approximately 1800 in 2018 according to a report posted on the IRS website.
According to the Criminal Defense Lawyer, a conviction for tax evasion and other tax crimes have a fine of up to two hundred fifty-thousand US dollars ($250,000.00) for individuals and five hundred thousand dollars ($500,000.00) for corporations. While other tax fraud crimes have maximum penalties of one hundred thousand US dollars ($100,000.00) for individuals and two hundred fifty-thousand US dollars ($250,000.00) for corporations.
Why Official Receipts Are Important
Did you know that you can lower your taxable income and increase your potential for a tax refund? The practice to observe is by looking at the purchases made and the bills you pay each year. Surprisingly, some of these are actually tax deductibles. According to Turbo Tax, receipts of medical, childcare, unreimbursed work-related, self-employment, and other expenses are required if you apply for deductions on your personal income tax return. On the other hand, saving receipts still depends on your personal tax situation. Moreover, the benefits of the sales tax deduction are accrued through one or more large purchases for the tax year—like a car, boat, RV, or real estate property. These will lead to a greater amount of sales tax than the value of income tax withheld. Other than that, the list below enumerates more importance of official receipts.
1. Accounting Method
Accrual-based accounting and cash-based accounting are two different accounting methods used by businesses. Both methods accept receipts in the entire business operations. However, cash invoices are accepted only by accrual-based businesses. These businesses have account payable accounts and record cash invoice transactions in their general ledger. Since cash-based businesses do not have account payable accounts in their accounting book, they cannot record cash invoices.
2. Tax Recording
Because the Internal Revenue Service (IRS) is specific regarding acceptable proof expenses and income from business operations, all persons subject to tax shall issue sales receipts and commercial invoices with the date of transaction, quantity, unit cost, and description of product or services. The official receipt is regarded by the IRS as adequate proof that an expense happened. Based on the tax evasion statistics published by IRS, 1,714 tax crimes were investigated in 2019 and 1,811 in the previous year.
3. Calculating Withholding Tax
What are withholding taxes? These are taxes that businesses have to withhold from their supplier from a payment. It is required to deduct 30% withholding tax if the source gross is not connected with a US trade or business. This leads to a legal obligation to file and remit that withholding tax to IRS using form W-4 as proof that the tax has been applied. Like value-added tax (VAT) (discussed below) every business should rely on its official receipts when computing the applicable withholding tax payable. Hence, a payment receipt should be issued or received for every transaction entered into by a business because taxes cannot be computed or remitted without it.
4. Calculating Value Added Tax (VAT)
Each service-oriented business relies on official receipts when calculating the level of VAT to be filed to the IRS. What is VAT? It is an indirect tax that applies to the purchase of most goods and services. The current rate of VAT in the US is 10%. Furthermore, the collected tax is called Output VAT while the VAT paid on purchasing goods and services is called Input VAT.
5. Requirement for Audit Season
Every year, audit season comes around. This is the period usually between January and April and the busiest time of the year for businesses. During audit season, business owners should validate all transactions and activities occurring throughout the fiscal year. Hence, they must prepare and submit various financial and tax documents to the government’s revenue regulating bodies like the IRS. The appointed auditor needs all the important business documents to perform the audit. This undertaking ensures that companies comply with their corporate and financial obligations.
Elements of an Official Receipt
Whether you are a startup or a business operating for many years, issuing receipts should be on top of your priority list. Non-compliance with this order can result in tax evasion or other tax crimes. The Criminal Defense lawyer said that the penalty for such crimes is between $250,000.00 for individuals and $500,000.00 for corporations. Other tax frauds can cost an individual $100,000.00 and a corporation $250,000.00. Hence, learning to create receipts is a crucial skill for having a business. Before starting to make your official receipt, make sure you know what it is consists of. The list below will tell you everything you need to know about elements of an official receipt.
How Do You Make an Official Receipt?
Making official receipts is not as challenging as you think. Receipt templates are available online. You can start by browsing through our website and discover a collection of different types of ready-made business templates. Additionally, editing tools and word processors are helpful for customizing the template’s suggested content. Before we tell you the tips in creating impressive receipts, make sure you started a plan to outline different parts of your receipts.
Tip 1: Select a Template
Stencils or templates are available on the internet. To download high-quality templates, look for a reliable source. Using a template will not require you to start from scratch in creating your receipt. Aside from that, it comes with editable suggested content so that you can align the elements to your needs. If you are still hesitant in using a template, think of the time you could have spent on other projects than spending so many hours making a single receipt.
Tip 2: Choose an Editing Tool
The best editing tool doubles the convenience of your chosen template. However, you just cannot pick a random word processor. To use an editing tool, make sure it is compatible with the stencil you downloaded. The way around this is by checking the template’s feature on the website. The applicable tools should be mentioned on the webpage. Choose a template that is suitable for the word processor you can easily access. Otherwise, looking for the right editing tool for your template will be another concern.
Tip 3: Make It Appealing
Even if an official receipt is a business document, it should not be excused from the designs. You can add borders and tables to neatly organize the content. It is also important to the receipt on brand. Thus, use logos or symbols that are easily recognizable as your belonging. It helps clients identify your business through representations. However, overdesigning the receipt can deficit the purpose it serves. So, find the balance and keep every content afloat.
Tip 4: Keep It Simple and Concise
In addition to the third tip, keep the official receipt simple. Make sure it looks professional by using simple font styles or use novelty fonts if you want to make a statement. Use your own judgment in designing the receipt. Moreover, use simple words to clearly send your message across. Avoid hard-to-understand words because it will confuse your customers, which is not a good thing when dealing with a contentious matter like this.
What are the different types of receipts?
How long should a receipt be kept?
The IRS suggested keeping official receipts for at least three years or as long as necessary.
What other business records should I keep?
- Previous Tax Returns
- Employment Taxes
- Assets and Business Property
- Canceled Checks and Bank Statements
- Credit Card Statement
Official receipts are not just proof of transaction. It is also necessary for tracking sales and declaring income tax. Doing this effectively means complying with the legal requirements that cover the financial aspects of your business. Moreover, issuing official receipts to your customers guarantees them proof of their purchase. If you are to create a receipt form, get your copy today on our website and experience the convenience a template can bring!