How Personal Expense Management Software Companies Can Save Your Business a Bundle in Taxes
What are taxes?
A tax is a compulsory financial charge imposed on an individual or legal entity by a governmental organization to fund government spending and various public expenditures. Failing to pay, evading, or resisting taxation is a crime.
Most countries charge a tax on an individual's income as well as on corporate income.
To be successful, a business needs to keep accurate records. You need to have a business plan or business model you are following, the right business type, a working accounting method, a good bookkeeper, and the ability to collect all this information in one place and then use it to your advantage. Part of this process includes the retention of receipts and invoices.
This is where personal expense tracking software becomes invaluable.
The importance of receipts
A receipt is a document, originally in print but now some businesses deliver electronic receipts. The receipt confirms that a transaction took place between two people. It is written proof that a seller received monetary compensation in exchange for a product or service provided to the buyer/customer.
Without the business receipt and the information it contains, there is no official record of the shift in ownership following a purchase, or a request for a refund or exchange. Proof of ownership is one of the most important details to be able to prove when resolving taxes.
Receipts help you track spending
Another reason to keep your receipts is to see where your money is going. It's hard to know whether you're staying within your budget if you can't see the total of what you're spending.
Keep or scan your receipts and add up the totals at the end of each month. If you're over budget, review the receipts to see where you're overspending. Then, make a plan to plug those “˜holes' in your budget.
Receipts contain the following information
- Information about the buyers and sellers: names, addresses, phone numbers, etc.
- A list of the goods and services provided
- A breakdown of the fee paid: prices, discounts, promotional codes or credits, taxes, etc.
- The total amount paid
- The method of payment employed
Which receipts should you keep for tax purposes?
Do you really have to save every receipt of every personal and business expense for taxes?
No, you do not.
But which receipts should you save to comply with the IRS? Which can you part with, to help your bookkeeping remain clear and concise?
It's important to learn which receipts are short-term keepers, and which ones are to remain in your possession for long-term, tax-related reasons.
For the short term
When you’re running a small business these are important to keep track of as they are often tax deductible and added up they may lower the bottom line of your tax costs by a fair measure. Things like office supplies, dinners with clients and small expenses.
For the long haul
The more expensive your personal transaction is, the more important holding onto receipts becomes. This, in case the warranty needs to be enacted (with the receipt serving as proof). But long-term receipt storage is even more critical when it comes to business expenses and tax purposes.
Do you own your own business? Records pertaining to unreimbursed work-related transactions, self-employment expenditures, donations, and even childcare and medical expenses, can be used for tax deduction purposes. Be sure to hold onto all business expense receipts for seven years, in case you’re audited.
- Keeping accurate records of your receipts and payments is essential to your business’s success.
- Proper receipts will help you separate taxable and nontaxable income and identify your actual deductions.
- Receipts protect both the buyer, the seller, and their business against uncalled-for recourse. They inject much-needed transparency into the transaction.
Monitor your business’ progress:
Creating, collating, and collecting records throughout your business enterprises is an essential tool in keeping track of your business’s successes and failures. Accurate records are vital to a business of any size. You need to know how you are doing to increase your ability to succeed.
Prepare financial statements:
To keep a proper balance sheet, you need your receipts to let you know of profit and loss.
Identify the source of receipts:
While in business, you may work with many different companies and end up with money coming from many sources. Doing business with many companies will also significantly increase the number of receipts you get from varied sources. Keep the receipts you receive and the invoices you give.
Prepare tax returns:
Business receipts help recreate a snapshot of your tax year. To reconstruct this picture and come out with the most accurate accounting return, you need to keep your receipts.
Support items on your tax return:
KEEP RECORDS! You must always have records that back up your tax return. The IRS frequently audits businesses, and you need to have documents that support your tax return.
What Other Business Records Should I Keep?
- Invoices from Business transactions
- Receipts from expenditures
- Payroll records
- Previous tax returns
- Travel, entertainment, transportation, and gift expenses
- Employment taxes
- Assets and business property
- Canceled checks and bank statements
- Credit card statements
- Salary records
How Long Should I Keep These Records?
The IRS states that you must keep these records for as long as they may be needed for the administration of any provision of the Internal Revenue Code.
Generally, you should keep most records for three years. If you have employees, those records should be held for four years or longer. Some experts recommend keeping all tax records for at least five years after assessment. If you want to be safe, you can hold them closer to seven years.
You may have further questions about taxes. Do not hesitate to reach out and ask for help.
How do I keep these records?
All of the electronic receipts you receive you should send to yourself and save under an e-mail file.
By saving your receipts when the end of the year comes you have a swift, simple way to provide all of your needed information.
John Brody is a content manager at Wellybox.. He is an experienced journalist who has covered finance, technology, psychology, marketing and education.
When he isn’t writing John enjoys being a devoted uncle, a professional chef and an old-school gamer.