Those who are getting ready to file their taxes typically look forward to the process about as much as a trip to the dentist for a thorough cleaning.Keeping your business receipts can make this a much easier process. Let’s go over why and what receipts you should save.
Why You Need To Keep Your Receipts
There are a few major reasons why you should keep all of your business receipts: financial health and for your taxes.
You may know how much money you have in your bank accounts. But, do you have a clear picture of the overall financial health of your business? Some freelancers and small business owners I spoke to simply don’t. Keeping track of business expenses and receipts is a great way to get a clearer view of your business.
You want to keep your business receipts because nearly every business expense is deductible. The more legitimate deductions you can take, the lower your taxable income will be. The more you can lower your taxable income, the fewer taxes you’ll pay. That means more money back in your pocket to invest in your business or to spend however you want.
Which Receipts Should You Keep?
We say “receipt” but you can take that to mean any recording of expenses. We all have a large pile of paperwork and it can be tough to figure out what to keep and toss.
The types of receipts you should keep depend on what type of taxes you’re going to file. If you’re a W2 worker, the tax value of keeping many receipts is relatively low. But, if you’re self-employed, you’ll want to keep almost all of them.
Don’t forget things like a “receipt” of your vehicle expenses through something like a mileage log.
How To Keep Track Of Your Business Receipts
You must find a way to organize all your receipts, invoices and bills. Otherwise, you won’t have them all when you need them. Find an organizational method that works for you.
For some, an upscale accordion binder is enough. Others may have the Tax Pro who still accepts your shoebox full of receipts. For the rest of you, see how technology may solve this problem.
Using a digital form to keep track of your receipts has multiple advantages. You can send quick digital reports to your tax pro and you never have to worry about losing receipts. Most services do cost a fee but that’s a tax-deductible expense under most circumstances.
Another easy solution: make a habit of snapping a picture of every single business receipt. It’s still going to be a pain to tally them at the end of the year but at least you have them.
The Early Bird Feels Less Stress
Early and ongoing organization of your invoices, bills, mileage trackers and receipts is the best method for making tax season less stressful. While this may require setting up some new routines or methods of organization early in the year, it is sure to save you money and countless hours of frustration.
If you are having a hard time getting motivated with reference to being more organized, simply take a moment to think about how difficult it was to compile all of the necessary information for this year’s taxes.
Take time now to do some scheduling and planning so that when tax time rolls around next year, you will be able to simply reach for or click on the folder of documents that you have been carefully compiling throughout the year.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.