Learning to track your expenses is the foundation to a solid business. By doing so, it allows you to monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and support what you report on your tax return.
Here are five types of receipts that you should pay extra attention to:
1. Meals and Entertainment:
Conducting a business meeting in a coffee shop or restaurant is a great cost effective option, just be sure to document it well. On the back of the receipt, record who attended and the purpose of the meal or outing.
2. Out of Town Business Travel:
The IRS is wary of people claiming personal activities as business expenses. Thankfully, your receipts also provide a paper trail of your business activities while away.
3. Vehicle Related Expenses:
Record where, when, and why you used the vehicle for business, and then apply the percentage of use to vehicle related expenses.
4. Receipts for Gifts:
For gifts like tickets to a concert, it matters whether the gift giver goes to the event with the recipient. If they do, then the expense would be categorized as entertainment, rather than a gift. Note these details on the receipt.
5. Home Office Receipts:
Similar to the vehicle expenses, you need to calculate what percentage of your home is used for business and then apply that percentage to home related expenses.
Right from the beginning, you should establish a system for organizing receipts and other important documents. By doing so you can easily validate your business financials and taxes.
I always tell my clients that the burden of proof falls on the taxpayer, the IRS can reject any expense that can not be substantiated.
If you have any questions regarding what receipts you should be keeping contact me today! Contact Me