When you run a business, you have a lot to manage. If there isn’t a person in your face forcing you to stay on top of a task, it can be easy to keep putting it off until tomorrow, Friday, or next week…and soon you have a big pile to work on.
While this strategy works for many projects, it can cause problems in the financial sphere. If you are audited, you will need a record for every transaction or face consequences. Your business expenses are not something you can offset or take your best guess. They must be accurate, and you must have the evidence to back them up.
The best and least stressful way to keep your business expenses accurate is to keep what the IRS calls a concurrent approach. It’s basically an organized approach to tracking your expenses as they happen. Here are eight tips to help you manage your business expenses and finances and ensure you’re prepared in the event of an audit.
1. Pick a strategy that works for you
You can outsource your finances by hiring an accountant or “QuickBooks expert.” The more cost-effective but time-intensive route is to track your expenses yourself, either manually or electronically.
2. Know what to track
You want to track the following items. Make sure you have a strategy for each.
3. Store your business expenses information in one place
Law requires that you keep all tax records for at least three years. This can be either a digital copy in the cloud or a physical copy. This may interest you : DHS – HS Today Prime Socio Business Vendor Outreach Matching Event. You could also store your expenses within your subscription service application.
4. Keep your business and personal accounts separate
Having a separate bank account for your small business will help you not mix your personal expenses with your business expenses. To see also : Woodstock coffee business works to give formerly incarcerated people of color a “second chance”. Having a credit card connected to the business account will also allow you to easily send business expenses through that account.
5. Use technology and apps to help streamline the process
Traditionally, professionals would keep all business receipts in a manila envelope. These days there are many electronic paperless options that sync with your accounts or allow you to upload photos of receipts. To see also : Femme Fire Books opens its first store in Riverside. Choose a platform you are comfortable with that is not prohibitive.
Additionally, you can use apps to help track a particular category of expenses. Google Maps can help recreate and calculate your business mileage. MileIQ is a great app to accurately track your mileage by tracking your movement for business trips, and it can generate a report at the end of the year.
6. Understand what qualifies as a deductible
This is one of the key areas that trigger disputes, so it is important to understand what does and does not qualify. According to the IRS, business deductions should be “both ordinary and necessary.” In other words, it’s an expense that’s common for businesses in your industry and necessary to run the business. This mostly includes office expenses like printer paper, monitors, computers, pens, etc.
If you’re not sure whether an expense qualifies as a deduction, track it down. Next, your tax advisor can guide you in determining whether to include that expense.
7. Remember: Only your business can make business deductions
If employees incur expenses on behalf of your business, their option is to discuss reimbursement with you. Employees cannot take business deductions on their personal taxes. This rule has changed in recent years, so some people may find the consequences confusing.
For example, people can only get rid of an office at home if they are self-employed. Otherwise, employees should discuss reimbursement with their employers.
8. Understand how to track donations
Your charitable donations aren’t a deductible business expense if you’re a sole proprietor reporting your business income on Schedule C, but they might be an itemized deduction on your personal return. If a donation is completed in exchange for sponsorship, it may be classified as advertising or marketing rather than charity.
This article was written by and represents the views of our contributing advisor, not the Kiplinger editorial team. You can check advisors at the SEC or at FINRA.
Andrew Gillund, CPA, MBT
Primary Tax Advisor, Berger Financial Group
Andy Gillund, CPA, MBT, is a primary tax advisor and CPA for Berger Financial Group. He has over a decade of experience in accounting and helping clients minimize their tax burden. Andy has a B.S. in Accounting and received his Master of Business Taxation degree from the University of Minnesota Carlson School of Management. He is active with the Minnesota Society of CPAs and the Volunteer Income Tax Assistance (VITA) program.
