Keeping track of business deductions will save a lot of time during tax season.
A deductible expense is something that will make the business profitable. Expenses must be ordinary and necessary, according to the IRS. Ordinary is something that is common to businesses, and necessary is something that is helpful and appropriate for businesses. There are plenty of businesses that rely on advertising, education and training, travel, supplies, and office expenses. It’s important to distinguish between a deduction and an asset to keep better track. An asset is something that will last longer than a year, such as furniture or computers.
Coming up with an organization system is the first step in keeping track of deductions.
Holding onto receipts will also be helpful. Keep every receipt, so there isn’t trouble later, even if the expense is miniscule. The IRS says businesses don’t have to keep receipts on $75 or less, but it doesn’t hurt. On the receipt, write down the business expenses. This is helpful for dining, so it’s possible to remember who accompanied the business owners and why. Since the IRS can audit a business six years in the past, scanning all the receipts to keep them will keep a business owner protected. If scanning is too difficult, use a smartphone to take a photo. It will be difficult to rely on credit card statements, so keeping receipts is the best option to make sure to get all the deductions. Statements can’t prove that the supplies bought were business purposes.
Cash is bad for business owners since these purchases are hard to track. It’s best to stick with credit cards and debit cards, so there is a record of expenses when combined with receipts.
Keep a daily business journal of expenses. It can be as simple as a Google calendar or other online calendar. The few minutes a day that is spent on this can save a lot of time later.
Besides keeping track of receipts, it’s useful to have another system that can import business expenses and show expense reports, especially if a business owner is not keeping track every day on an online calendar. Monitoring expenses, once they happen, will make tax time a lot easier, so a business owner isn’t scrambling to find every expense.