Business Owner’s Guide: Business Expenses & Record Keeping Essentials
- Jerrod Aud
- Aug 7, 2023
- 3 min read
Running a successful business involves more than generating revenue—it requires maintaining accurate records and understanding which expenses are deductible. Good recordkeeping not only helps maximize legitimate tax deductions but also provides valuable insight into the financial health of your business and helps protect you in the event of an IRS audit.
Why Recordkeeping Matters
Good recordkeeping helps you maximize deductions, monitor profitability, prepare accurate financial statements, secure financing, reduce tax preparation costs, support deductions during audits, and make informed business decisions.
Quick Reference Guide: Common Business Expenses
Office Supplies, Insurance, Professional Services, Vehicle Expenses, Travel, Meals, Equipment Purchases, Software Subscriptions, Home Office, and Employee Wages may all be deductible when properly documented.
The 5 Records Every Business Owner Should Keep
1. Business Bank Statements
2. Business Credit Card Statements
3. Receipts for Major Purchases
4. Mileage Logs
5. Payroll Records
Business Owners: Stop Using Your Personal Bank Account
Maintain separate business checking and credit card accounts to simplify bookkeeping, reduce audit risk, and improve financial reporting.
Understanding Deductible Business Expenses
Business expenses generally must be ordinary and necessary. Common categories include office expenses, professional services, marketing, insurance, and technology.
Vehicle Expenses: The Deduction Most Often Done Incorrectly
Maintain a mileage log and understand the difference between the standard mileage and actual expense methods.
Travel and Meal Expenses
Document who attended, the business purpose, date, and location of business meals and travel.
Home Office Expenses
A home office may qualify if it is used regularly and exclusively for business purposes.
7 Business Expense Mistakes We See Every Year
1. Mixing personal and business expenses
2. No mileage log
3. Missing equipment documentation
4. Paying expenses in cash without records
5. Reimbursing yourself incorrectly
6. Poor contractor documentation
7. Waiting until tax season
What Happens If You're Audited?
Maintain receipts, invoices, and supporting documentation. Digital copies are generally acceptable.
How Long Should You Keep Records?
Tax returns and formation documents should generally be retained permanently. Most supporting records should be retained for at least 7 years.
The Best Recordkeeping System Is the One You'll Actually Use
Cloud-based systems such as QuickBooks Online often provide the best combination of organization and accessibility.
When DIY Bookkeeping Stops Making Sense
Consider professional bookkeeping when you are falling behind, cannot accurately track profitability, or spend more time managing books than running your business.
How Rangeview Can Help
Rangeview Tax & Accounting helps business owners maintain accurate books, prepare financial statements, implement efficient systems, and engage in proactive tax planning.
Final Thoughts
The most successful business owners maintain accurate records, review financial statements regularly, and engage in proactive tax planning throughout the year.
Book a New Client Appointment
See if Rangeview Tax & Accounting is a good fit for you! We offer in-person, on-site, and telephone chats. We require a $75 deposit that is applied to future services when you come onboard to RANGEVIEW!
Book a Paid Consultation
Our paid consultation is $100 and puts you on the line with a tax professional who will answer questions that you have related to IRS Code, and Tax Strategies. Pay for your consultation, select one of the available appointments, and provide the general topic of discussion or questions that you wish to discuss.
Tax Planning
Stay on top of the upcoming filing season with a tax projection! We will collect various data including current pay stubs, expected business income, and more extraordinary situations like selling a home, rental, or business. From there we annualize the figures and run a mock tax return to get a good idea of an expected tax liability. This gives us a baseline in which we can further advise tax planning strategies that may apply.
Comments