Tracking your expenses is an integral step in managing your business’ finances. Unfortunately, merely writing down what you spend doesn’t cut it anymore.
When the IRS wants to have a look at what you’re writing off, or a potential acquirer for your small business wants to see how you spend your money, without any expense organization, you could end up deep over your head.
The following three tips for expense management will help survive your next audit:
1) Keep All of your Receipts
Anytime you spend over $75 on a business expense the IRS will require a receipt for it. But any business expense under $75, you are required to provide “convincing documentation” that the expense was actually incurred for a business purpose. While a calendar entry will provide some proof of a business expense, leave no doubt in your auditor’s mind by saving and collecting all of receipts, not just the expensive expenditures. There are plenty of portable receipt scanners out there such as ProOnGo Expense and Neat Receipts, but whatever you do, make sure you have a way to easily collect and store your receipts.
2) Log your Miles
Warren Buffet wrote-off his bicycle on his first income tax statement as a transportation cost at the age of 14. While you may not ride a bike to work, you can certainly write off the miles you drive. If you drive 20 miles round trip for work every day, then you could can write-off $10 for every day you drove to work in 2010.
3) Track both Business AND Personal Expenses
If you’re undergoing an audit, the main objective is to convince the auditor that the numbers you keep are dependable and accurate. This is why keeping track of your personal expenses, in addition to your business expenses, can give your auditor more confidence in your math. If you demonstrate you have a full understanding of what you can and can’t write off as business expenses, you will instill that much more confidence in your numbers.
An audit can be a major headache. Fortunately, expense management is a powerful tool in protecting yourself in case of an audit, so make sure you take the proper precautions the next time your write off your next business expense.