5 Receipts Small Business Owners Should Take Extra Care to Keep

Holding on to detailed receipts for expenses is one of your best defenses in an audit. Receipts also act as a log, allowing you to jot down important context about your (sometimes costly) expenses. Of course, not all receipts are created equal, so we’ve compiled a list of five, highly scrutinized receipts for which you’ll want to keep receipts.

Holding on to detailed receipts for expenses is one of your best defenses in an audit. Receipts also act as a log, allowing you to jot down important context about your (sometimes costly) expenses.

Of course, not all receipts are created equal, so we’ve compiled a list of five, highly scrutinized receipts you’ll want to keep.

1. Meal & Entertainment Receipts

Winning clients and building relationships are two of the many reasons we like to break bread with business contacts. Unfortunately, the line between “contacts” and friends is often blurred, making this an expense the IRS likes to scrutinize. For that reason, it’s best practice to keep receipts handy and properly documented in case of an audit. This includes recording information about who attended the meal and the purpose.

Shoeboxed Pro Tip: You can record this information using Shoeboxed in the “Notes” field for each receipt. When you submit an expense, simply include the initials of everyone who attended and a quick description of meeting purpose in the Notes section. Or if you use Magic Envelopes, you can jot down the information on the receipt and then add the information in the Notes field once the receipt has been processed. Simple as that.

Add a note to a Shoeboxed receipt by clicking on the Notes field in the receipt details
In the Shoeboxed web app, you can add receipt information like client name or meeting purpose under the “notes” section. Better documentation of Meals and Entertainment receipts will protect you from audits and verify that the expense is indeed deductible.

 

2. Receipts from Out of Town Business Travels

Out of town business travel generates tons of receipts from airline tickets, taxis, meals, laundry, lodging and more. Of course, business travel can also be mistaken for “pleasure”, making this another IRS favorite prone to audit scrutiny. Receipts verify what was purchased on the trip and also act as a travel log of where time on the business trip was spent. Some important factors that determine eligibility include: how much of the trip was personal in nature, if the trip was away from your tax home and if the amounts are justifiable.

Shoeboxed Pro Trip: When traveling, make it habit to submit receipts as you make the purchase — don’t wait until the end of your trip to document your paper trail. Using the Shoeboxed Receipt and Mileage Tracker app can help you achieve this, and it can also eliminate the possibility of losing a receipt. You wouldn’t want to lose reimbursement or deduction money because of a misplaced piece of paper!

Use Shoeboxed to track receipts on-the-go as you travel on business trips, like Uber ride receipts
1. Receipts verify business expenses used on business-related trips & keep a time log of your travel activities.
Use Shoeboxed to track receipts on-the-go as you travel on business trips, like Hotel stay receipts
2. Keeping track of receipts as you buy when traveling eliminates the risk of losing proof of purchase.
Use Shoeboxed to track receipts on-the-go as you travel on business trips, and then create expense reports to keep the deductible expenses organized
3. At the end of your trip, organize deductible receipts by creating expense reports right from your phone.

 

 

 

 

 

 

 

3. Vehicle Related Receipts

“Mixed use” assets, like a vehicle used for both personal and business purposes, require extra care to distinguish when they are being used for business and when they are not. Since only the portion of use that is for business should be counted in the company’s books, keeping clear and detailed records of when, where and why a vehicle is used for business purposes helps to establish what portion of use is business related.

The portion of use that is business related (e.g. 20% of use is for business) can then be applied against any vehicle related expenses (maintenance, parts etc). Always keep a detailed receipt (as opposed to a credit card statement) that lists what items or services the vehicle needs.  Remember, if an auditor can’t easily establish that a payment to Costco was for car tires and not for Tide, chances are that vehicle-related expense won’t be considered for business purposes.

Shoeboxed Pro Tip: Use the Shoeboxed Receipt and Mileage Tracker App to automatically track mileage using your phone’s built-in GPS when traveling to and from business meetings. Not only will the app record the precise start and end points of your trip for detailed documentation, but it will also apply the standard mileage rate.

Use Shoeboxed mileage tracking to keep accurate records of business expenses related to vehicle use
1. Drop a pin whenever you want to start, pause or end a trip to make sure you are maximizing deductible mileage rates.
Use Shoeboxed mileage tracking to keep accurate records of business expenses related to vehicle use
2. Adding a trip name and a note to distinguish the business-related nature of the trip will ensure it is deduction-friendly.
Use Shoeboxed mileage tracking to keep accurate records of business expenses related to vehicle use
3. Shoeboxed Mileage tracking syncs with your phone’s built-in GPS for accurate documentation of vehicle trips.

 

 

 

 

 

 

 

 

4. Receipts for Gifts

Gifts are a thoughtful way to build rapport, however, there are several nuances to be aware of. For example, deciphering whether concert or sporting event tickets are considered ‘gifts’ or ‘entertainment’ depends on whether or not the gift giver goes with their client or business prospect. Documenting this kind of information on the gift receipt is key to allowing your accountant to treat the expense correctly for tax purposes. For more detailed information on gift expense limits and interpretation, check out this publication.

Shoeboxed Pro Tip: If you want to keep better track of gift receipts, add a “Gift” category and assign that category to receipts that would be considered gifts for deduction purposes. You can also add information which can validate whether or not the receipt can be considered a gift in the “Notes” field under receipt details.

Manage receipts with Shoeboxed by using customized categories to organize expenses,
Add a “Gift” category and assign them to expenses that could be deducted as gifts. Organizing receipts by category can also help you and your accountant treat the expense correctly for tax purposes.

 

5. Home Office Receipts

Like vehicles, a home office is considered “mixed-use” and the expenses associated with claiming a home office are therefore closely scrutinized. The key to properly accounting for home office expenses is to establish what portion of the home and the home’s expenses the office represents. If the home office makes up 20% of the home’s space, for example, then this proportion of expenses is deemed common to both the home and home office such as rent, electricity, internet to name a few. Keeping the bills and proof of payment for the home expenses with the business’ files is important in case these home office related expenses are challenged. Be sure to read the IRS publication on home office expenses for more information on what shared use items do or don’t qualify.

Shoeboxed Pro Tip: Documents other than receipts (like bills and invoices that prove home office expenses) can also be used to protect your business in case of an audit. Luckily, you can upload a variety of documents to Shoeboxed — we don’t just scan receipts!

Shoeboxed can organize a variety of documents like bills, invoices and contracts to verify expenses, not just receipts
Home office deductions can get tricky because shared space with the “home” complicates the use of business expenses. Documents other than receipts (like bills and invoices that prove home office expenses) can be used to protect your business in case of an audit when receipts alone cannot distinguish home vs. office use.

An original version of this article was first published on the Shoeboxed Blog in November 2013 and was written by Ian Crosby, the CEO of Bench.co, an online accounting firm. This version has been altered to reflect IRS updates and new Shoeboxed features. 

Maximizing 2016 Tax Deductions: Tips & Tools for Millennial Freelancers

The earlier you organize expenses and keep track of potential deductions, the more money you’ll save in the long run.

Millennial freelancers are a force to be reckoned with and the numbers are there to prove it. According to a national survey from Freelancers Union and Upwork (formerly oDesk), 38% of millennials are freelancing — more than any other generation. Considering that they now make up 45% of entire workforce, this group of 20 and 30-somethings is taking the freelancing industry by storm.

It’s clear to see why. The benefits of being a freelancer align with the lifestyle that millennials seek. They want flexibility, independence and creativity – a perfect formula for a rise in freelancing jobs. But while there are many perks to being a freelancer, there are also stodgy downsides such as complicated taxes and the responsibility of tedious administrative tasks.

Luckily, there are ways to overcome these drawbacks. Tax season may be months away, but that doesn’t mean millennial freelancers can’t start prepping now. The earlier you organize expenses and understand tricks and tips to maximize deductions to make tax season a breeze, the more money you’ll save in the long run. Start sooner rather than later with these recommended tools and tricks:

Research Deductions in the Freelancers Union Tax Blog
One thing freelancers shouldn’t complain to the IRS about is the amount of tax breaks they offer. Tax breaks give freelancers a valuable opportunity to win back money they’ve been spending on their business. It’s also a unique way to encourage entrepreneurship. There’s only one problem: it’s hard to keep track of what’s what, and deductions often change on a yearly basis.

Learn about which expenses qualify for which tax break by reading the in-depth tax blog written by the awesome folks at Freelancers Union. Freelancers Union is a nonprofit organization and insurance company that advocates for the rights of freelancers. Their blog posts are written by freelance veterans and include everything from how to calculate hourly rates to how to write client contracts.

Freelancers Union Shoeboxed

Don’t procrastinate! Use IFTTT for Important Date Reminders
Unless you want to have a very stressful week, don’t wait until right before April 15 to prep and file your taxes! When you take your time to carefully approach filing your taxes, it won’t seem as stressful or time consuming. You’re more likely to make an error or miss out on a deduction if you rush the process.

Eliminate the risk of filing late by using IFTTT. Simply set a receipe that sends a email and/or text reminders on certain dates leading up to the April 15 deadline. This nifty web tool can also help with QET deadline reminders.

IFTTT Shoeboxed

When in doubt, ask for help using sites like NerdWallet
With an endless supply of information, the Internet of things can answer any question you may have related to taxes. Sometimes though, having 10+ pages pulled up with an overwhelming amount of information can make material difficult to comprehend (which is especially true for taxes). Depending on the complexity of your question, it may be best to approach a tax expert or CPA. Tax deductions change often — stay ahead of the curve and make sure you’re taking advantage of ways to save money by asking for help.

Enter NerdWallet, an educational blog that helps millennials make smarter financial decisions by breaking down complex financial information into simple terms. The writers at NerdWallet can tell you exactly which expenses qualify for which tax break as you track your finances into tax season. They also have on-demand financial professionals available to answer your tax questions directly from their homepage.

NerdWallet Shoeboxed Freelance

Organize Your Receipts and Expenses by Tax Category with Shoeboxed
One of the easiest way for freelancers to maximize tax deductions is by staying organized and keeping updated records of receipts, payments and expenses. The IRS demands documented proof for claims, so having everything stored and accessible can reduce a substantial amount of time and pressure. Organization also helps maximize deductions and reimbursements without the hassle of scrambling to find misplaced financial records.

Apps like Shoeboxed let on-the-go freelancers snap pictures of receipts using their phone, which are then digitally stored as IRS-accepted images. Receipts are processed and organized so that vendor, total amount, date, tax category and payment type are extracted and available in a searchable online account. Simply make a note that the receipt is deductible and boom – you have a digital archive of everything you can write off for taxes.

Shoeboxed Freelancers

Use these tools and tips to help make your freelance tax season the smoothest (and most time-saving) yet!

Small Business Tax Changes to Look Out For in 2014

Each year the IRS makes tax changes that impact small businesses, but they can be easy to miss. Here are some small business tax changes for 2014.

Each year the IRS makes tax changes that impact small businesses, but usually they’re small and easy to miss. When filing your taxes this year, you’ll have to account for some major changes to multiple small business tax laws. Here are the highlights.

Home office deduction

A lot of small business owners balk at taking a home office deduction, even if they legitimately work from home!

The main reason for this is that the IRS method for calculating the deduction has always seemed to involve high level calculus equations and the use of a tape measure. Thankfully, Uncle Sam has come to his senses and decided to make it easier than ever for small business owners to calculate their home office deductions.

Now you can deduct $5 per square foot with a maximum $1500 deduction. No more measuring the square footage of the bathroom or calculating portions of your utility bills. Simply determine the square footage of your home office, multiply that number times $5, and that’s the amount you’re eligible to deduct.

The $1500 cap also means the office area in question can’t be larger than 300 square feet. If it is larger, a) good for you! and b) you can still only take the deduction up to 300 square feet.

Just make sure that your business income is higher than your expenses – if your expenses are greater, you’ll only qualify for a portion of the deduction.

Affordable Care Act

There is still a lot of confusion surrounding the Affordable Care Act, and what it means for small businesses. Don’t freak out, and don’t believe all the hype – the best thing you can do is research how the new laws impact your business, because the way the act is applied to someone else’s business may be completely different than how it’s applied to yours.

The manner in which the Affordable Care Act impacts your small business depends, in part, on the size of your small business.

If you have less than 50 employees, you won’t be required to offer health insurance and you won’t be fined if you don’t. The majority of small business owners in the U.S. fall into this category, which means the act won’t impact their taxes in any way.

However, if you have less than 50 employees and you do choose to provide health insurance to them, the IRS will give you a tax credit.

Do your research – every small business is different, and a tax law that applies to your friend’s company may not apply to yours, even if you have the same number of employees.

A health insurance agent is a great resource for finding out more about how the Affordable Care Act affects your small business. Contact a representative from an insurance agency and get your questions answered – these representatives are required to be up to date on the way the law impacts small businesses.

Equipment and other assets

This change is perhaps the biggest for 2014.

Purchasing equipment for your small business is a huge expense. Because of this, Uncle Sam has allowed small business owners to deduct the cost of the purchase of large equipment, as well as the amount the equipment depreciates in value over the first few years after purchase.

Well, bad news for anyone out there buying million dollar security systems or restaurant equipment. Last year, section 179 allowed you to deduct up to half a million dollars. This year? Uncle Sam decided that $25,000 was the highest he’d go.

That’s right – the deduction amount has been reduced to just 5% of the original amount. If you’d been planning on making a large equipment purchase in 2014, you might want to wait a year or two and see if the allowance is restored to the higher amount.

Questions about your 2014 taxes? Post them below!

No Rendering of Advice – The information contained in here represents the opinion of Shoeboxed, Inc. and is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant or attorney. We advise not to act upon this information without seeking the service of a professional accountant. Any U.S. federal tax advice contained in this website is not intended to be used for the purpose of avoiding penalties under U.S. federal tax law. 
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