Most of our clients at Biesinger & Kofford CPAs use QuickBooks to keep track of their business expenses. This is an excellent program to use and recording every expense for your business is an important step towards keeping appropriate records for your tax return. However, it is only the first step. In addition to these spreadsheets, you also need to keep a detailed paper trail to support those recorded expenses.
That paper trail greatly simplifies your business’s tax return filing, allowing your Provo tax accountant to double check all of your claimed deductions quickly and easily. But additionally, your paper trail can protect you in the event of a tax audit. Not sure how to maintain these records? Here are some suggestions.
Keeping Your Receipts
For every expense that you want to claim for your business, you should have some sort of proof of the expense, such as a receipt or a paid invoice. Many business owners believe that their business bank account records are a sufficient paper trail, but these do not provide enough details to protect you during a tax audit. It is much safer to keep the actual receipt.
Of course, keeping the actual papers is not only a hassle, but it’s also a liability, as these kinds of documents are easy to lose. We recommend scanning all of your receipts and invoices; you can even just take a photo using your cellphone and add it to a digital file of all your business receipts. When it’s time to file your taxes, just share this file with your CPA as well as providing them with your books for faster and easier tax filing.
Tracking Your Miles
If you’re claiming any vehicle expenses for your business, you can either claim a percentage of actual vehicle costs, or you can claim the standard mileage deduction. If you choose the former, you’ll want to keep a digital folder of your receipts for vehicle expenses, as described above, and a mileage log. If you’re claiming the standard mileage deduction, you’ll need to keep a detailed record of the miles you drive for your business. The simplest way to do this is to simply have a spreadsheet that includes the following information:
- Date of the trip
- Starting odometer reading
- Ending odometer reading
- Reason for the trip (meeting a supplier, attending a networking meeting, etc.)
- Actual destination
- Total miles driven
If you simply make a guess at the number of miles you drove for your business in the last year, this will not stand up to an audit. However, with a detailed record of your miles, you’ll be able to claim this deduction without concerns. To see an example of the kind of record you should keep, click here: http://www.irs.gov/pub/irs-pdf/p463.pdf#page=27.
If you have any questions about what records you need to keep for your business tax return, contact your Provo tax accountant. We can provide you with advice on how to best maintain your records to simplify your return and protect yourself if you’re audited.