Claiming Business Expenses the Right Way

When you own a business, no matter how big or how small, you are going to incur some expenses along the way. The IRS defines true business expenses as any costs that are “ordinary and necessary” in the operation of the business.

It is important that you keep track of any and all business expenses you encounter throughout the year. Then, when tax time rolls around, you can look through your expenses, sort out the ones that can be claimed, and save yourself quite a bit of money.

Hiring a good, reliable accountant to sort through your business expense lists can be worthwhile and can make the process go a lot more quickly and easily. Either way, though, it is important that you understand the basics of claiming business expenses and that you know a few tips and shortcuts that can help you along the way.

Tip #1: Document Anything and Everything

First things first, you need to be documenting every single business expense that you incur throughout the year. Documenting doesn’t just mean writing down the expense either; no, it means maintaining some kind of proof of the expense, just in case you ever go through an audit or are asked to back up your claims.

The easiest way to properly document your expenses is by keeping receipts for purchases made. You can do this the old-fashioned way by actually keeping physical receipts and putting them in a filing cabinet or other storage space. Or, you can invest in a cloud-based system that allows you to scan in receipts and keep them on file virtually.

In addition to keeping receipts, don’t forget to maintain logs for business travel if applicable, and make sure your employees are doing the same.

Tip #2: Value Accuracy Above All Else

Another very important thing to keep in mind is to ensure that all of your calculations are completely accurate before you submit your deductions to the IRS. Not doing so can greatly increase the chances that you’ll be audited, which can be a real hassle. Plus, you could miss deadlines and face fines and fees due to inaccurate reporting.

Back deductions up with worksheets when applicable and make sure you are up to date on any changes that the IRS has made for the current tax year, such as being aware of the latest mileage rates.

Your best bet is always to have a professional accountant do the checking for you, but if you’re doing your taxes alone, check and double-check everything!

Tip #3: Don’t Forget to Differentiate

Finally, make sure that all of your business expenses are being categorized appropriately. Not doing so is basically asking for an audit!

Keep true business expenses, as defined and explained above, separate from other things like capital expenses and personal expenses. And, before you just assume something counts as a business expense, double check the tax law or ask your financial adviser.

Filing taxes is stressful, and filing business expenses, though it will pay off in the long run, is too. That’s why you should keep these helpful tips in mind as you go through this arduous but worthwhile process.

Wednesday, June 22, 2016