In a recent small business survey conducted by Intuit into the receipt and expense challenges of small business owners, it was revealed that the vast majority of those who responded don’t actually expense 100 percent of their business expenses on an annual basis.
The reasons for this were enlightening to say the least.
Some people said that they are not completely sure what they can and cannot expense in the first place. Others said that they often forget to ask for receipts, and if they do, they often lose them. Most alarmingly, the mean price of the most expensive item a respondent purchased but couldn’t expense because they didn’t have the receipt came in at an amazing $10,135.31. Most respondents say that they miss out on a median amount of $500 every year from unclaimed expenses. But when 61.8 percent of respondents say that they are “somewhat organized, but could be better” in terms of record keeping, this is one of those situations in which the question more or less provides its own answer.
In an era in which apps like Receipt Bank and QuickBooks have made keeping track of receipts easier than ever, there’s truly no excuse for being so disorganized. Not only is it preventing your own accountants from being able to deduct everything to which you are entitled, but it’s also setting your business up for long-term financial troubles, too.
Thankfully, the solution is a lot more straightforward than it may first appear. If you truly want to get better at keeping receipts and at record keeping in general, there are a few key things to keep in mind.
The Art of Better Record Keeping: Breaking Things Down
Generally speaking, there are three main types of receipts that you need to keep as a business owner. These include:
To get better at all this, you need to start keeping your business finances separate from your personal finances. Things are much easier to track if they’re separate. This is also important to the IRS (as when your funds are kept together, protection provided by an LLC begins to evaporate), which means that it needs to be important to you, too.
Likewise, save receipts for all of the categories outlined above. Whether you save digital copies of them in an app or physical copies of them in a filing cabinet doesn’t matter. You need as much information that you can use to prove that a purchase was a valid business expense as you can get. Bank account statements will help when it comes to satisfying the IRS, too.
Finally, don’t be afraid to embrace the 21st century and use cloud accounting software. QuickBooks Online, Xero, Wave and others don’t just make it easier for you to get better insight into how you’re doing financially. They’ll also be hugely beneficial for the accounting and other financial professionals that you partner with on an ongoing basis, too.
Frank Jenkins, CPA writes for CountingWorks, an accounting news and advice website. Reach him at [email protected].
About Frank Jenkins Jr
Frank Jenkins Jr. CPA is the managing partner of Adams, Jenkins & Cheatham, a CPA practice based in Midlothian, VA. Frank specializes in Consulting services, tax planning, audit & assurances. "I genuinely care about our clients because I have a personal connection with them." He is active in the community and belongs to the AICPA and the VSCPA.
