The Importance of Submitting Receipts
A frequent mistake businesses make is padding their tax deductions for such things as business purchases, travel expenses, meals and entertainment, and other tax-deductible transactions. Should these categories of deductible expenses seem excessive they can raise a red flag with the Internal Revenue Service, causing what accountants and/or bookkeepers have nightmares about: an audit. However, audits brought on by negligence and misallocation can be prevented. Not all companies operate the same way. Therefore, there is no precise, standard formula for how exactly to run the books. Every company operates based on their core values, each having their own methodology on how to account and post for their expenditures.
The person(s) in your accounting department are usually the one responsible for properly posting expenses to the correct categories. But, it is not solely up to the accounting department to simply code to the correct account. Rather, it is a team effort of each individual who is making purchases on behalf of the company. Company credit cards are the hardest to keep up with because it falls in the hands of each person who is using their card to keep track of all of their receipts.
Keep in mind if you do not have the receipts you are not actually allowed to take the deductions for anything in excess of $75.00.
That is why it is very important to keep business receipts well organized and submitted to the accounting department on a regular basis. Laborious efforts should be put into the processing and coding in your accounting department, the payout for taking the few extra steps will be priceless should an audit occur. The following information should clearly be noted on all receipts:
1. First and/or last name of the card holder;
2. The last four digits of the credit card number;
3. If the receipt is for a business-related dinner, or pretty much anything that is “Meals and Entertainment” then provide a brief explanation of the purpose of the dinner or entertainment, and the parties name(s) that attended. It is helpful to write on the back of the receipt the reason for the dinner, and how it relates to your business;
4. Accounting code (if known).
If you have expenses that are client related such as travel expenses, or meals and entertainment that are to be invoiced to the client for reimbursement, the accounting department will need the following information provided with the receipt:
— Client and Matter number;
— Description of narrative to show on the invoice to be sent to the client for reimbursement.
If you are less likely to keep up with the paper copy of the receipt, then a simple solution can be to take a picture with your smartphone. With today’s technology, it is easy to say “Forget the receipt, I’ll just make a note on the receipt and take a picture of it.” This is a great idea and there are various apps for the iPhone and Android that can help better track your expenses.
By keeping the above guidelines in mind, you will be able to be better prepared should your business ever be audited.
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