Week 3- I use my “business” checking account only for business expenses, so why do I need to keep receipts?

Nov 30,2020 Self-employed, Taxes, Accountant, Receipts, Hiring an accountant, New business, Tax Help, Benson, Dunn, Four Oaks, North Carolina

I hear this so often, everything in my business checking account is business so I don’t keep receipts because I debited it or wrote a check. If only that was true for everyone but for most, there is always some personal “dabbling” within the checking account. 

When you come to my office and ask for my help to build your income and expenses and you tell me it's all business, I can take your word at it and help build Income and Expense reports based on this statement … but if you ever get that dreaded IRS letter that says “we would like to review your expenses” we now have a problem. 

Let's say every morning you stop at the local T-Mart to fuel up your truck and equipment for the day of business and while you are there, you get a biscuit, a coke and a pack a cigarettes….you head over to the register and they check everything out together fuel included and the total comes to $89.68 and your use the company debit card. Remember your statement was “everything is business” but how about that pack of cigarettes, biscuit and drink….those are nondeductible expenses and you took them with “fuel” as an expense and when the IRS comes, you don’t have a receipt to show the expense for Fuel and that means the auditor may disallow that expense and all the others from your “regular morning stop”. One receipt may not seem like much but let them disallow all of them from the tax year and you will definitely see your tax liability go up.

Every store or shop that you go to, can always sell you a certain number of personal items and the receipt allows an auditor to verify your business purchase. It is very important to keep all receipts ….. fuel, supplies, amazon purchases for business, business utility bills including cell phone, etc. I would always recommend keeping more than less, don’t allow you and your business to not have what is needed to verify income and expenses. 

Moral of the story: unless you want “Uncle Sam” to be able to come back for more taxes that you know the money was spent on expenses…SAVE YOUR RECEIPTS…. This small item can save you thousands in the long run! 

https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-records-should-i-keep