by William Olsen, CPA, Co-founder and VP of Product Development at Deductr
It seems like tax time is fraught with last minute scrambling to gather business records for those who claim business deductions. The vision of sorting through receipts “mining” for deductions makes procrastinators out of all of us. Proper deduction tracking during the year is not as difficult as you might think.
Avoiding these three common errors in expense tracking will help you prepare better and have less tax time stress:
1. Incomplete Mileage Log.
One of the common misconceptions of mileage tracking is that you have to write down your beginning and ending odometer every time you get in and out of your car to complete a business mileage log. The truth is an ending odometer at the end of December, which becomes the beginning odometer for the start of the new tax year, is all you need. That way you know the total miles you drove during the year. With that, your business mileage log only needs three things for each entry; 1) Date; 2) Miles driven; and, 3) Description of the business purpose.
2. Saving Receipts.
To save the receipt, or not to save the receipt…that is the question. The official rule is that a receipt is not needed unless the expense is over $75, or for lodging. But that doesn’t really cover everything. There are two other circumstances where a detailed receipt is needed regardless of the dollar value: 1) when you pay for deductible items with cash; and, 2) When the expense is not obvious. For example, if you purchase office supplies at a drug store, a detailed receipt would be needed to substantiate that the items purchased were not personal. On the other hand, a receipt for a credit card purchase to “Discount Business Cards Only” for $36, would not be necessary to prove the deduction.
3. Record Business purpose.
The most important element of proper record keeping is to document the business purpose for the deduction you are claiming. It can be as simple as writing the name of the person you treated to lunch and what you discussed on the lunch receipt to substantiate a meal deduction; or a note in your calendar to document the business purpose of a meeting for which you claimed deductible business miles. Either way, deductible business expenses must have a legitimate business purpose and that must be documented.
Whatever system you use, make your life easier at tax-time by documenting your business deductions as you go instead of scrambling after the year is over.
William Olsen, CPA, Co-Founder and Director of Deductr been in the tax industry for 20 years and a licensed CPA since 1997. He started his career specializing in IRS problems resolution and has been an expert tax practitioner ever since. He graduated from the University of Utah with Honors in 1994 with a BA in Accounting and earned his MACC from Southern Utah University in 1995. He is a licensed CPA in the State of Utah. William designed the tax and accounting functionality of Deductr.