For many business owners, tax time feels like a big interruption to normal business operations.
Imagine that you’re driving down the road and you’re pull over. Being pulled over increases your travel time, and it will take you a few minutes to get back on the road and up to speed again.
Preparing your business’ taxes may feel the same way. Like pulling your car over, tax preparation requires you to step away from managing your operation, and you may lose momentum.
This article discusses some of the challenges of tax recordkeeping, including business receipts, and how you can implement changes to make tax time less demanding.
Preparing in Advance
Smart business owners put systems in place to make tax time less of a burden, and the most critical part of that system is recordkeeping.
Think about last spring. How much time did you spend gathering records? Were you missing documents, such as business receipts? The biggest frustration at tax time may simply be poor recordkeeping.
A recent survey of 500 small business owners and self-employed workers points out the problems with business receipts; this includes lost time and missing tax deductions.
Why Paper Files Don’t Work
Filing paper copies of business receipts is time consuming, unreliable, and receipts can be damaged or easily lost.
The survey noted that only 1 in 5 respondents digitally track their receipts on an app, computer desktop, or mobile phone. Nearly 7 out of 10 people indicated that they lose at least one receipt every month, and 1 in 5 of the respondents stated that they don’t deduct every expense because they lose receipts.
Not all of these lost receipts are small dollar amounts. 1 in 3 workers have bought an item over $500 they couldn’t expense because they didn’t have the receipt.
The Financial Cost
If you don’t keep receipts to support your tax deductions, you’ll deduct fewer dollars and pay a higher tax liability.
Most business owners understand this potential risk. The survey found that 85% of respondents don’t deduct all of their eligible expenses at tax time. In many cases, small business owners know they’re paying more taxes than necessary, and that creates stress. Thirteen percent of workers said they feel stress related to expense tracking on a monthly basis.
Many survey respondents know that they need to improve their business receipts process and wish they had a better method.
If you feel that way, there is a solution to the recordkeeping problem.
The Benefits of an Online System
The solution is to use technology.
QuickBooks accounting software provides an app that you can use to scan business receipts and organize your expenses. When you scan a receipt, QuickBooks will attach it to a specific expense account in your books, and the software will save the receipt as a digital file that you can easily access at tax time.
The ability to scan, record expenses, and file receipts online has some substantial benefits.
- Travel receipts: Business travel can present problems when it comes to receipts. You’re in cars, hotels, and planes, and keeping physical copies of receipts can be difficult. If you can scan receipts as you receive them, you don’t have to keep track of that manila folder of receipts in your briefcase.
- Lost and damaged receipts: You can be assured that throwing receipts into a physical file will result in documents that are damaged or lost. Late in the year, your file folders may be full, and that increases the risk of problems. Online filing eliminates these issues.
- Locating receipts at tax time: When you gather records for tax preparation, you must group your receipts, based on the type of expense incurred. Your business travel receipts, for example, must be grouped and added together. Online files make this process much easier because your receipts are already grouped together based on the expense account used when the document was scanned.
If you put an online receipts system in place, you’re far more likely to collect better information and post all of your allowed business expenses to your tax return. You’ll also spend far less time on recordkeeping at tax time.
Create and distribute a written procedures manual, and include the online receipt process in your manual.
To get the most out of your online system, you need to communicate the process to your staff. Even if you only have a few employees, you need to explain the process to get the most out of the system.
Finally, using automation can help you ensure that you’re not overspending and that each expense can be justified. If, for example, a salesperson is spending more than is approved while traveling, you’ll notice it immediately when the receipts are scanned.
Work More Productively
Leveraging technology can help you grow your business and complete more tasks in less time. Use an online receipts scanning process to eliminate paper files, collect and record all of your expenses, and maximize your allowed business deductions.