Why is it important to keep some, but not all, receipts as part of your financial records?

• A. Only receipts related to deductible expenses or significant purchases are necessary for tax and audit purposes.
• B. Receipts should only be kept for cash transactions, not for credit or debit card purchases.
• C. All receipts, regardless of amount or relevance, must be kept indefinitely for financial records.
• D. Receipts are never needed since bank statements provide all necessary documentation.

Answer: (A)

Verified step by step guidance

1. Understand the purpose of keeping receipts: Receipts serve as proof of transactions and are essential for verifying deductible expenses, significant purchases, or cash transactions during tax filing or audits.
2. Identify which receipts are necessary: Focus on receipts related to deductible expenses (e.g., business expenses, charitable donations) and significant purchases (e.g., assets or items with warranties). These are crucial for tax and audit purposes.
3. Recognize the difference between cash and card transactions: Receipts for cash transactions are particularly important because they may not be reflected in bank statements, unlike credit or debit card purchases.
4. Avoid keeping unnecessary receipts: Not all receipts need to be kept indefinitely. Retain only those relevant to financial records, tax purposes, or warranties, and discard others to avoid clutter.
5. Understand the role of bank statements: While bank statements provide documentation for card transactions, they do not replace receipts for deductible expenses or significant purchases. Receipts provide detailed itemized information that bank statements lack.