Technology can be helpful when it comes to bookkeeping!
There are many new gadgets and applications on the market that assist with tracking business expenses. While these “apps” eliminate paper, they do not eliminate the need to provide your tax preparer with the records they deem necessary to prepare your income tax returns. For example, a GPS app on your phone can track your mileage by trip, date etc., but you still need to supplement your mileage records with invoices and third-party documentation to validate the business purpose of the trip.
Many phones allow a business owner to photograph business receipts. While this provides a picture of the receipt on their telephone, it leaves you with nothing to give to your income tax preparer. You are faced with the choice of printing out all your business receipts, or e-mailing them to your tax preparer so they may glean any necessary information during the process of preparing your income tax returns.
The newest banking technology allows a business owner to deposit his customer checks electronically simply by using the banks “app” and photographing them. Again, this minimizes paper but what can you give to your tax preparer, or worse yet, to the IRS if you are audited? How easy will it be to research and reproduce your tax receipts for your business? You need an efficient method of categorizing and storing your documents for easy retrieval later if needed.
Technology devices can be helpful tools to assisting in capturing and storing your information. But you still need to establish procedures for easy retrieval should you need to produce certain records for tax preparation, insurance or other purposes later.
Improper procedures can cost time and money!
I recently met with a contractor who had very organized files. You could tell he spent a lot of time assembling his receipts. The problem: they were organized in a manner that was not efficient for preparing a tax return. The gentleman had organized his records by vendor. The income tax returns ask for information by category.
Another client who has a sales territory and frequently eats at restaurants provided me with a very organized envelope of receipts for meals eaten with his company’s clients. They were organized by date and the total was written on the outside of the envelope for reference. The problem is, the income tax regulations also require the name of the party you entertained, and the business purpose of the meeting. If not written on the receipt, the meal is not deductible.
We are always happy to counsel business owners on what they need to do to make their system of recordkeeping as efficient and accurate as possible. A little assistance up front can save a lot of time and money later. Give us a call or contact us here.