What is a Receipt?

A receipt is like the minutes of a local school board meeting…

At many types of meetings, including school board meetings, someone records the minutes. The meeting minutes serve as a record for everything that happened at the meeting. They include the attendance, the topics the members talked about, and any votes the board took. A receipt is like the meeting minutes of a financial transaction. It includes a summary of what took place and how much money traded hands.

A receipt is a physical or digital document that acknowledges that money or something else of value changed hands. You probably come across receipts most often in the case of sales receipts, which are a summary of your transaction that you receive when you make a purchase. A transaction receipt includes information such as the date of purchase, the amount you paid, the retailer, and other relevant information. For some people, a receipt may be just a handy way to remember how much they spent at the store yesterday. But receipts also serve a legal purpose, as they give proof of certain financial transactions for tax purposes.

The purpose of a receipt is to give both the buyer and the seller documentation of the money and goods that changed hands. For the customer in a transaction, a receipt is a helpful document for balancing your personal bank account. A receipt is also important in case you buy an item that you later decide you need to return.

Receipts are also important for the seller of the product. First, companies need documentation of sales so they can keep their ledgers (a record of all their transactions) up to date. The Internal Revenue Service (IRS) also requires that companies keep certain business receipts.

First, business owners must keep records of all sales. Records they should retain include cash register tapes, deposit information, credit card statements, receipt books, and invoices. The IRS requires that they keep information such as the parties of the transaction, the total amount paid, and the date of each transaction. Companies also need to keep records of any costs they incur in the course of doing business.

Suppose you own a small business and bought a few new pieces of furniture for your office. Because it's a business expense, you’ll be able to deduct when you file your tax return. But you’ll have to hang onto the receipt for the furniture. That way, if there are any questions about the deduction, you’ll be able to show proof of the transaction.

The use of paper receipts dates back to the early Roman times. Moneylenders would rack up cash to lend to other people. They would use receipts to document the amounts they’d received and had lent out. They’d even use receipts as currency, endorsing them to third parties to use as money. When traveling from one location to another distant one, carrying a receipt was often safer than carrying a pocket full of coins.

The term receipt has other historical uses as well, as the word used to be used interchangeably with the term recipe (as in cooking). So what does receipt mean? Receipt and recipe both come from a Latin word that means to take or receive. While you probably know the two as completely different words, you may have found the term receipt in a cookbook instead of recipe in previous centuries, and even into the mid 20th century.

You’ve probably noticed that receipts tend to look a bit different depending on where you get them. Somes receipts might be short and to the point. For example, have you ever gotten a deposit receipt from an ATM? There’s not a lot of fluff on those. And yet the payment receipt you get from a local retailer might have an extra two feet of coupons. For a receipt to meet the Internal Revenue Service (IRS) guidelines of proof of purchase, it has to include the following information:

• The payee (meaning the individual or entity receiving the money)
• The amount paid
• The date of the payment
• A description of the item

Depending on the purchase, the receipt may include other information as well. If the purchase is subject to sales tax, the receipt may show the amount of tax you paid. Some states require that retailers include the amount of sales tax on the receipt they give you. For a retail receipt, you may also find information about a store’s return policy or warranty information.

Receipts aren’t just the slips of paper you receive from your local grocery or retail store when you’re out shopping (though that’s certainly one example of a receipt). A receipt is documentation of something of value changing hands. Under the Internal Revenue Service (IRS) definition of what counts as proof of a transaction, the following may count as receipts:

• Cash register tape (meaning the type of receipt you’d get at the store)
• Receipt books
• Invoices
• Canceled checks
• Bank statements
• Credit card statements
• Real estate closing statements

The Internal Revenue Service (IRS) requires that taxpayers keep receipts and records used to file taxes, including documentation related to income or any tax credits or deductions that one claims. That way if the IRS decides to audit someone later, they have the necessary documentation. This rule also applies to businesses for any financial records they plan to use on their tax returns.

It used to be the case that you had to hang onto the original receipt to stay in the IRS’s good graces. So, if you’d given items to your local Goodwill and planned to claim a deduction for a charitable donation, you’d have to have the original paper donation receipt you got at Goodwill.

In 1997, the IRS changed its policy to allow taxpayers to use an electronic storage system to store digital copies of their receipts. These records still have to meet the same rules as physical copies. The digital copy has to be a scanned version of your original record, and it has to be clear and legible. If you become the subject of an IRS audit, you may still have to print out the record to provide a hardcopy at the request of the auditor. As long as you’ve kept a digital copy that meets the IRS records requirements, you’ll be in compliance with the law.

So, let’s say a person paid student loan interest in 2019 and claimed the student loan interest deduction. Their lender would have sent them a document via mail or email that showed how much interest they’d paid during the year. If they claim the deduction, the IRS asks that they hang onto that document. They can either keep the paper copy or store it digitally. If the IRS audits them a few years down the road, they’ll be ready to hand over a digital or printed version to prove they were eligible for the deduction.

If you own a business and sell a product or service, you’ll probably find yourself having to write a receipt at some point, both for your customer and for your own records. If that’s the case, here are a few things you may want to keep in mind:

1. Be sure your receipt includes all Internal Revenue Service (IRS) requirements. At the very least, your receipt should include your business name, the date, the purchase price, and the good or service changing hands. Depending on the product you offer and whether it is subject to sales tax, you may also need to include sales tax due.
2. Decide whether to provide a physical or digital receipt. If you’re an online seller, an email receipt might make more sense, while customers in a physical store might expect a printed receipt. Regardless of the route you choose to go, you can likely find a software service that helps you generate your receipts.
3. Include any extra information that’s important to you. The IRS provides certain information that should be on a receipt, but that doesn’t mean you can’t include anything extra. You can also include your store address or contact information, your return policy for physical items, a discount code or coupon, or anything else you want your customer to know.