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. Instead, the gentleman had organized his records by vendor.
The solution: The income tax return wants information organized by category.
Organizing your records by vendor will cause a lot of additional work to summarize the same transactions by category later.
Some items, like utility and phone bills won’t cause much confusion. But when you shop at large retailers that carry many types of items, and may even provide services, you have to be able to categorize your receipts by line item. For example; you can buy building supplies at WalMart or you can buy personal items. At Staples you can buy a computer, candy, or even copy services. To organize your expenses and receipts you need to log all line items on your receipt in it’s rightful category.
Records organized by vendor does not indicate which line on the tax return the transaction should be reported.
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 that was entertained, and the business purpose of the meeting. If this is 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 record keeping as efficient and accurate as possible. If you’d like to speak with us or make an appointment. Contact us today!
A little assistance up front can save a lot of time and money later.