Good record-keeping is an essential aspect of running a business. It equips business owners with a snapshot of where their business stands in terms of expenses, profits, and losses. It’s also a necessity to fully claim deductions for which the business is eligible. Every year businesses miss out on tax deductions for which they qualify merely because they fail to keep an accurate record of their unreimbursed business expenses.
WHY DOCUMENT EXPENSES?
The main reason to keep records of unreimbursed business expenses is to represent deductions and claims in the event of an audit, as well as to support these same items during annual tax filings. The IRS requires that businesses keep records for a minimum of 3 years. While the IRS does not mandate a specific way in which a business should keep records, organization is key.
Being unable to prove deductions is giving money away to the IRS that could be better used growing your business.
WHAT SHOULD YOU RECORD?
The purpose of record keeping is to have proof of finances, so keep all pertinent records related to every business transaction, such as receipts, bills, invoices, payments, and losses. Since all businesses should seek to claim as many deductions as they are entitled to, it is important to keep records pertaining to business use of vehicles, properties, and all business travel. Most of these records will consist of a copy of the item being recorded, such as copies of bills or invoices. Receipts should also be kept together and in chronological order.
Records of unreimbursed business travel should be noted with travel dates, destination, and purpose of trip. In this case, all expenses incurred as a result of travel are deductible, so keep every taxi receipt, restaurant bill, dry cleaning receipt, and travel records. For unreimbursed business meals not incurred during business travels, keep a record of who you dine with, date, and the purpose of the event.
Perhaps the most stringent recording requirements come in the form of the the mileage log. This is a log to track unreimbursed mileage for business use of vehicles. The mileage log should record the following: date, destination, purpose, and odometer readings before and after trip.
It may take some time to log these items at the end of each day, but doing so will prevent issues later on.
If you are ready to start recording expenses to back up deductions, contact Fusion CPA for a free consultation on how to get started. Our tax experts will help you maximize your tax savings and will tell you what you need to record in order to fulfill the IRS requirement.
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