An essential part of business bookkeeping is saving and recording all your receipts. If you're usually lax about tending to details, then one of the first habits you should develop as an entrepreneur is saving receipts and dealing with them in a timely manner. This saves a lot of frustration at tax time since every entry in your books needs some sort of documentation to back it up. Plus, by having all your receipts, you could pay less in taxes. Try some of these tips for dealing with your receipts when you're a solo entrepreneur or have a small business.
Learn IRS Regulations
The first step in dealing with your receipts is to understand the IRS regulations for substantiating your bookkeeping entries. You might do this by reading IRS publications or talking with your attorney or accountant. This helps you do your books so all the documentation you need is in order if you're ever audited by the IRS. It's usually not enough to simply save your receipts and hand them to your bookkeeping service to enter. The receipts need to be clarified so the IRS doesn't think they're for personal expenses. In the same way, a business credit card statement needs to be itemized.
While this seems like a lot of work, once you have a system and a good habit in place, you can prepare receipts the right way before you give them to your bookkeeper. Otherwise, you're wasting time and risking a bad outcome in case of an audit.
Write the Purpose on Each Receipt
Get in the habit of saving every receipt you get. Then write the details of the purchase on the back of the slip of paper. The receipt will have an itemized list of your purchase usually along with the name of the shop, date, and time. The information you need to add is what the purchase was for so it can be distinguished from a personal purchase. For instance, you might write on the back of a restaurant receipt that the occasion was a business lunch with a client, and then add the client's name. Do this as soon as you get the receipt or shortly after or you'll forget what the receipt was for.
Create Digital Copies of Your Receipts
You'll need to hold on to the receipts for several years along with your tax forms. However, receipts fade in time, so having digital backups is advisable. Having your receipts stored on the cloud makes it easy to access them from anywhere and sort them by date and category. This makes it possible to quickly find a receipt from years ago and to track how much you're spending on certain things.
You can take photos of your receipts and send them to your bookkeeper to record or you can give the originals to your bookkeeping service to enter by hand while they're doing your books. Once your receipts have been turned into digital files, you can create a number of helpful reports that show you how well your business is doing with expenses. This makes your receipts a valuable source of information and much more useful than if they are just pieces of paper stored in a box.Share