Looking for receipts and invoices can take up precious time…
As tax season approaches, one of the key responsibilities for business owners and managers is organizing company expenses. Documenting these expenses is important for tax preparation but also for making sure the company’s finances are accurate. Here are some suggestions for organizing your business expenses to make tax season more manageable and easier.
The foundation of effective expense organization is maintaining detailed records. Creating a dedicated system to track all business-related expenses including your receipts and any supporting documents. It’s easier than ever to keep current by using expense tracking apps on your phone that can integrate with your accounting software. QuickBooks, Xero, and other accounting software also let you store images of receipts or invoices with the individual records so you can refer back to them. Another basic system to manage expenses is to write notes on the receipt, take a picture of it, and email the picture to yourself or your bookkeeper to review later. Such a system doesn’t have to be complicated, but it should be consistent to avoid missing valuable deductions.
One of the best ways to simplify keeping records is to use a business bank card or account for business expenses rather than using personal funds and getting reimbursements. This takes the guesswork out of whether the purchase was for work or personal and also prevents taking the time to move money from one account to another.
Once you have your expenses recorded, you’ll want to group them into categories to have a clear and organized overview. Categories include:
Office Supplies and Expenses
Marketing and Advertising
Professional Services (e.g., legal, accounting)
Rent or Lease
Repairs and Maintenance
Travel
Meals and Entertainment
Utilities
It’s important to understand the tax regulations and guidelines to determine which expenses are deductible as this may change a company’s spending. For instance, the IRS says a company can “deduct no more than $25 of the cost of business gifts you give directly or indirectly to each person during your tax year”. Another example is how tax laws were changed temporarily to allow 100% of business meal expenses to be tax deductible. This changed back to 50% in 2022; however, some managers and owners didn’t understand this and continued to attempt to deduct the full expense. Knowing these things can change how a company spends its money to maximize deductions and comply with tax laws.
Organizing business expenses for tax preparation is a proactive approach that not only facilitates a smoother tax season but also contributes to overall financial management. By creating a standard process and leveraging technology, you can increase consistency, reduce the risk of errors, and ensure compliance with tax regulations. If you aren’t sure how to do this yourself or need help in coming up with a system or need help doing the work, Brightleaf is happy to partner with you to make that happen! Stay organized, stay informed, and make tax season a stress-free experience for your business!
- John Thrush