Important Tips For Better Management of Your Receipts
The IRS, generally, wants you to prove two things for all expenses in your business: how you spent the money and the business purpose for the expenditure. Receipts are an easy way to prove both parts of the IRS requirement. However, here are some important tips for better management of your receipts.
1. Avoid paying with cash
An auditor will always ask where the cash is from. Then, you must also keep immaculate records about the cash withdrawal so there is clear paper trail. However, it’s difficult to prove that you spent the cash directly on the business expense. Therefore, opt to make business purchases with a debit or credit card that is specifically for business use only.
2. Keep your bank and credit card statements
Bank and credit card statements are only a part of the burden of proof you must keep to substantiate your business purchases. Business credit card statements and voided checks have a clear paper trail. However, alone, they only show how much you paid out. It does not show what you purchased. The receipt, on the other hand, allows you to prove the business purpose of each item.
3. Some purchases ALWAYS require a receipt (or written documentation)
Expenditures over $75 for entertainment, travel, gifts, vehicles, transportation, entertainment facilities, computer and computer equipment all require a receipt. In addition, you always need a receipt for lodging for out-of-town-travel and any charitable contributions over $250. Do yourself a favor. Keep records of ALL your transactions so you don’t need to remember which purchases are more important than others.
4. Create electronic copies of receipts
Receipts fade over time. Because IRS audits can happen a year or two after you submit your tax return, your physical receipts may no longer exist! Therefore, systemize a way to create electronic copies of your receipts. Moreover, pick an app that allows you to backup your copies on your computer. Apps can cease to be functional by the time you need to show the IRS proof of your expenses.
Receipts are a vital part of your business. I encourage you to make it a priority to manage your receipts regularly. Paragon helps small business owners keep their bookkeeping, taxes and payroll up to date on a regular basis. More importantly, we will caution you on the mistakes small businesses are likely to make.