As a business owner, it can be easy to forget about keeping track of the “little things” that come with running a business, such as receipts and recording expenses.
Today, I’m going to explain what needs to be done to stay in compliance with the IRS when it comes to receipts and proof of purchase within your business.
Track Your Expenses
These days, most businesses are living in the digital world and have gone completely paperless, which is a great thing, however that does not mean we’re off the hook with proof of receipts, invoices and statements! The IRS still requires business owners to have proof of expenses, showing that there were necessary goods or services purchased for the business.
What you want to avoid is ending up in a pinch if the IRS requests backup for your tax deductions and you can’t provide them proof! When this happens, the IRS will remove those tax deductions, count them as taxable income and not only will you as the business owner have to pay tax on it but also a penalty on the amount owed.
For more information on what receipts and expenses to keep track of, check out this week’s YouTube video!
For those of you who like to see it in black and white, directly from the source – Check out this article directly from the IRS: (https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-records-should-i-keep)
From that article, they say:
- Supporting documentation should identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item purchased or service received.
- Accepted documents are:
- Canceled checks or other documents reflecting proof of payment/electronic funds transferred
- Cash register tape receipts
- Account statements
- Credit card receipts and statements
Plus, they have a note that says a combination of supporting documents might be required to substantiate all elements of the expense.
Why Bookkeeping Matters!
Remember with good bookkeeping, these documents can be kept electronically. The important thing is that you have them well organized and easily accessible if audited.
A good bookkeeping system will help with financial records and reports to support your deductions.
If you need assistance with bookkeeping, check out my free course, made for small business owners to gain a better understanding of the who, what, when, where, and why of bookkeeping for your business.
Check it out and enroll today!