There are many reasons to keep track of expenses. You receive a clear understanding of your company’s financial health from these records. Secondly, maintain accurate expense records so you can defend yourself if audited. You should start if you aren’t already. Business owners should consider investing in an expense tracking ledger. You may be able to save money on your taxes if you keep track of your expenses. To support each deduction, you will need to keep receipts and documentation. Organise receipts and expenses for easier tax preparation using these tips.
Monthly updates are a good idea.
Maintaining receipts and expenses regularly will help you keep up with them. Thus, you won’t be sitting down at tax time to file your taxes and finding out you need documentation that dates back months. You can also find a free tax calculator online that can make deciphering receipts a little less burdensome. To make finding receipts and paperwork easier, purchase color-coded folders to store them in. You might find the following folders:
Expenses for home and office:
You should keep receipts, energy, gas, and water bills, home repairs, maintenance, and renovation projects, as well as phone and Internet bills.
Mileage and expenses for vehicles:
Vehicle repair and maintenance details; licensing, registration, and vehicle repair receipts; tires; and statements related to rental or lease accounts.
Expenses such as textbooks, tuition, and student fees.
Expenses for child care:
Child care pay stubs from your work account; receipts from childcare when you did charity work.
Out-of-pocket expenses related to health insurance; premiums.
Donations of time, services, and money. Moving fees, taxes, and investment expenses, uniforms, laundry or dry cleaning for work uniforms, business supplies (pens and paper). The following expenses (moving, unreimbursed employees, and tax/investment planning) may be deducted as itemized deductions through the 2017 tax year if they exceed 2 percent of your taxable income. These 2 percent deductions no longer apply to tax years beginning after 2018, unless they are a business expense. The deduction of these expenses is allowed in some states, such as California.
Check for lost receipts in your wallet or bag (and organize them in the correct folder) to be sure all your deductions are accounted for.
Maintaining order and organizing documentation throughout tax season keeps your workload manageable. Furthermore, you have a chance to make italicized notes on your receipts about relevant meetings with clients, like the ones you met at the upcoming power lunch that will be deducted – while the details are still fresh in your mind.
Backups should be kept on both paper and electronic devices.
Even though paper receipts are essential to documenting your expenses, a receipt can become lost, damaged, or fade over time. Maintain a digital copy of expenses and receipts to protect them. Simply follow these steps:
- Keeping receipts electronically is as simple as scanning them and storing them as images or PDFs, or you can ask for them to be emailed to you
- Rent receipts should be kept electronically
- Utility bills in PDF format
Check your electronic documentation during your regular check-ins to see if you have a digital copy of all receipts before storing any long-term documents.
The easiest way to document expenses
Consider tracking your daily expenses on the go if you don’t like spending an evening scanning receipts. During your monthly tax check-in, just import and organize your receipts based on the digital backup you created at the point of sale.
Organizing and storing photo receipts is possible with some budgeting apps, like Mint. Take advantage of the expense tracking feature in your budgeting software or apps if you wish to track your deductible expenses.
Take a backup of your information
Unfortunately, even the most carefully crafted and organized storage system can fail by no fault of your own–losing a phone, crashing a laptop, breaking a hard drive, or experiencing a fire or flood can wipe out all records. If a failure occurs with your hard drive or software, you’ll be protected with a regular backup to the cloud. It is critical to know more about the deductible solution in order to simplify homeowners’ payments.
A monthly spreadsheet in Microsoft Excel or Google Sheets can be a simple and effective way to track your expenses. A cup of coffee, a bottle of water, or batteries are some examples of small, minor purchases. Your expense tracker should contain every expenditure you make.
Making a separate spreadsheet for your credit card purchases is a good idea if you have credit cards. You should keep a sheet to track debit card and cash transactions and a second to record credit card purchases. On one spreadsheet, you can create a new tab for each, but be careful to track them each separately. The expenses tab offers a summary section where you can combine both totals.
As well as direct expenses, including rent and utilities, you need to include indirect expenses. You can deduct a portion of these expenses if you have a home-based business. Vehicles are also subject to this in some cases. Calculating these allocations does not have a fixed percentage rate. Generally, the rate is determined by the allocation factor. You can learn more in our guide about home offices. To calculate the business portion for deductions, you simply apply the percentage to the indirect expenses.
Track your business miles on your vehicles. The owners of Airbnbs and Turo properties should also keep track of the days when they rent their properties. Take measurements of your home office to determine what is deductible. Tax professionals can help you determine which expenses qualify for deductions if you are unsure.