How to Substantiate Business Expenses Accurately

It may seem like one of those nagging jobs that no one really gets excited about, but thoroughly tracking expenses is key to running a successful business for many reasons. Primarily, you are required by law to file taxes to the IRS on a quarterly or annual basis. Much of the information you will enter on your forms will come from summaries of business activities that you’ve already conducted throughout the year. You need to know the total cost of doing business to submit an accurate report on profits for tax calculations. Otherwise, you could be foregoing valuable tax deductions. 

Another side of tracking business expenses is so that you can ensure that you are spending smartly. Assiduously tracking can help you identify problems or patterns—perhaps you are overspending in one area and cutting back will help you direct those extra funds elsewhere. With a little planning, you can learn how to substantiate business expenses daily so that it feels less like a chore and more like a critical part of your daily business routine.

Fiscal business planning

At the base of budgeting, forecasting, and setting sales goals is the combined costs of running your business. Begin your review at a high level with fixed expenses as a frame of reference and drill your way down into categories. Accounting software packages contain all the tools you need to code and aggregate expenses. They help you with records and reporting, but tracking individual transactions on your credit cards is a different beast. Everyone gets busy, and when you’re working under deadlines it’s easy to lose track of non-priorities such as this. 

Tracking receipts daily with mobile software that allows you to snap a photo of your receipts and categorize purchases as business expenses is a quick and easy way to keep everything in one place. Some also allow you to create a workgroup for your employees where you can view everyone’s expense tracking in one place. They should also allow you to run or export monthly report which you can then reconcile back to your main business accounting.

Tracking travel expenses

Travel is one of the most challenges business expenses to track. It can be expensive, but it’s often an essential aspect of doing business. Trips to the airport, hotels, food, and beverages, in addition to the plane ticket, all need to be expensed. However, when you’re running around preparing for meetings it’s easy to lose track of purchases and receipts. If you’re busy juggling too many tasks at once, throw your receipts into an envelope and add them to your expense tracker once you are back home. One thing to note is that you need the original tape receipt or something that can be printed out later for proper record-keeping protocol. Line items on credit card bills are not enough to substantiate business expenses to the IRS. In fact, the IRS website has a guide on what kind of records you need to keep, and how best to do so.

Keeping tabs on vehicles and mileage

This one is tough to use for tax purposes if you aren’t consistent, but there are ways to simply track mileage and vehicle expenses. Earlier, I mentioned mobile apps that allow you to record your receipts. Well, find one that can also track mileage. If you have a client meeting, but you’re not going there directly from your office, just record the distance from your office.

Vehicle maintenance, fuel, payments, and insurance are all business-related expenses that can likely be deducted from your taxes. Buy some filing cabinets if you need to and save your receipts. Cloud storage is great, but is not a complete archiving solution. Don’t risk being subject to an audit and not have the records to back up the numbers you’re reporting to the IRS. While not always convenient, the few extra hours of work you put in to track receipts is a best practice for substantiating business expenses, and it can save you a big headache down the line.

Expensing is not always straightforward

If your business or expenses for that matter are unique and you still have questions, consider speaking with a tax expert at SD Mayer. They have decades of industry experience, and CPAs on staff to help you address the gray areas of expense recording. How to substantiate business expenses properly is a key aspect of making your business successful and protecting your reputation. They’d be happy to review your current expense methodology and share some ideas with you on how to improve it, all within current IRS guidelines.

SD Mayer is a team of experienced and knowledgeable finance experts who can help you get on track with making sure your business records are up-to-date and accurate. There’s no reason that substantiating business expenses should feel like a second job. Contact us today for more information about organizing your expenses.

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