Be honest– how many times have you claimed the full amount on a receipt as a business deduction with non-business related items on it? For example, purchasing gas, a legitimate business expense, but then also including a soda and bag of chips in the total amount of the deduction. Mixing personal and business expenses on receipts is a common problem. Investing time, energy and funds into a functional receipt management system can be extremely beneficial. We’ve created a shortlist of options to help you determine the best way to organize receipts for your business.
Organize Receipts: Professional Help
Some clients have a tendency to toss their receipts into a file folder for their accountants to figure out and sort through at year-end. Part of your accountant’s job is to determine which expenses are business-related and which are not. The only way we can accomplish this is with your help and input. It’s time consuming and tedious work, which can impact your total overall fees.
If accounting is something you dread, the best way to organize your receipts may be hiring assistance to do the work. If you’re looking for an approach that’s less formal than your CPA, consider hiring a bookkeeper. The ideal bookkeeper is well trained and can easily manage your receipts as they come in. Since they are on the front lines of the business, they will be able to recognize regular business receipts and potential personal expenses. Once you’ve accessed QuickBooks, run a P&L Comparison report. This type of report will produce an organized, easy-to-read view of your expenses and income.
Another tip is sticking to itemized receipts. This will make the job much easier, regardless of which professional you decide to use.
(You may also like: Creating a Budget: 3 Helpful Guidelines to Get You Started)
Try A System For Doing It Yourself
If you feel up for the job, try doing it yourself. Just remember: different systems work for different people.
- Use an app: There are many digital/electronic options for managing receipts that don’t require holding onto the original paper. Our firm offers a free smartphone app that allows you to document a receipt by taking a picture of it. It automatically sends it to a QuickBooks friendly spreadsheet. There may be other apps that work similarly that connects to your credit card or bank to streamline it even more. If managing receipts feels overwhelming to you, an automated app will be the best solution. (Check out our post: Make Managing Receipts Easier With the WHH Receipt App Feature)
- Annotate Receipts: If you are doing it on your own, it’s probably easiest to just mark the physical receipt as soon as you receive it. For example: if you purchase $60 in gas plus a few extras, write the gas purchase amount on the receipt before leaving the station. Establishing this habit can significantly impact the accuracy of your business deduction. In addition, it will save your bookkeeper or CPA sometime later down the line, which means more savings for you as well!
- Make Separate Transactions: Another option for simplifying the process is to ask your cashier to ring items up separately. Ask your cashier to ring your business purchases in a separate transaction than your personal purchases. This may not be the best way to organize receipts for everyone, but keep in mind it is a legitimate option.
The best way to organize receipts for your business is to find the solution that works for you. The process of sorting out business and personal expenses can be confusing, but especially so if you don’t have the right system in place. Create a manageable system that works for you and that will ultimately save you trouble later down the line.
By: Leslie Baker
CPA, Accountant at WHH
