It seems like tax time is fraught with last minute scrambling to gather records for business deductions. A 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 for tax time.
Mileage: One of the common misconceptions of mileage tracking is that you have to write down your beginning and ending odometer every time you get into and out of your car to complete a business mileage log. The truth is, if you use your vehicle exclusively for business you only need the beginning and ending odometer for the year to establish the total miles driven during the year. If your vehicle is used for both business and personal use, your mileage log needs only three things for each entry; 1) Date; 2) Miles driven; and, 3) Business purpose.
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.
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 took 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.
Whatever system you use, you will make your life easier at tax-time by documenting your business deductions as you go instead of scrambling to find everything after the year is over. This is why we developed Deductr 5 years ago, to help maximize deductions and eliminate tax-time stress by simplifying the tracking process and making it automatic throughout the year.
