Keeping receipts and recording mileage sounds easy, in theory. And yet, according to Denise Neamon, partner at Gaines Kriner Elliott LLP, many sole proprietors and small business owners don’t do it.
Some fail out of a lack of organization. Others simply aren’t informed. For example, “some business owners believe that if they’re audited, they can just use the electronic records from their credit card statements,” she says. “But that’s not the case. You need an actual, physical receipt for each and every transaction reported on the credit card statement.”
To keep track of them all, she recommends keeping a shoebox or plastic bin in your car. Anytime you use your business credit card to pay for a meal, for instance, write on the receipt whom you were with and the purpose of the meeting. Then, at the end of each month, reconcile those receipts to your credit card statements.
Besides keeping receipts, another big area where she sees business owners dropping the ball involves recording business mileage and related expenses. When you’re rushing from place to place, it’s easy to brush it off. But failing to track your mileage can be costly, especially with high gas prices.
To ensure you deduct an accurate amount come tax time (whether you’re deducting mileage or actual expenses), Denise suggests keeping a mileage logbook right in your car. Be sure to have the odometer reading on your vehicle at both the beginning and end of your trip. Then, to track your business mileage, log the date, number of miles driven and the business purpose of each trip. As for actual expenses such as gas, oil changes, parking, etc., use that shoebox or plastic bin to gather your receipts.
Or you can track mileage using your calendar. “I use the calendar in Outlook, so I know where I am at all times,” she says. “At the end of each month, I go to Mapquest and punch in the addresses of the places I traveled to and get the actual mileage.”
However you choose to keep receipts and track mileage, finding a system that works for you is imperative. According to Denise, if you’re audited, being prepared is a must. Not only will keeping receipts and accurate records help you track business costs, but it will also lessen the chances the IRS will deny your claimed expenses and require that you pay more in taxes.