How to Legally Write Off Your Business Expenses with No Receipts
Whether you are a small business, home-based business, or a big business, keeping up with business receipts are a must. Some of you may have a shoebox in your office that reads Business Receipts. You may go through them once a week, once a month or once a year hoping they’re still visible so you can log them. Sometimes you forget to put them in the box or even lose a few here or there. Anyway, it’s a tedious chore that’s imperative to the legality of your business. If you choose not to log your receipts, how would you know what your actual business expenses were for the year? How would you know if you made a profit or a loss? How could you justify your business transactions without receipts?
I want to share with you my method of keeping up with my business receipts. This method has made logging receipts so much easier and I can do it on my cell phone. All I do is enter the date, amount, who, what, where, then take a picture of the receipt with my phone and click save. This can be done as soon as you complete your transaction. Even if you’re ordering items online. This is so much easier than waiting a week or longer to choose a specific day to log all your receipts. I still keep my paper receipts in an envelope for future references. If you lose a receipt or if you have one that has faded, you can still have access to it because you took a picture of it on your smartphone which was saved to a database along with all your business transactions. So if you’re audited by the IRS you have tangible access and you don’t have to scavenge through a shoebox trying to find receipts. They are logged by month, date and year, so if you need a specific receipt from a specific date, you can go to your database and pull it up and print it.
Before I give you the steps, I want to go over some terms that you may not be familiar with. Business Expense is money you spend on your business. This means the money you spend on your business that is necessary to keep that business running. That could range from rent, promotional materials, advertising, travel, supplies, autogas, utility bills, car insurance, business phone, etc. There are three qualifications to legally justify a business expense: (1) The intent to make a profit (2) Must be consistently working the business 3-5 hours a week (3) Must keep proper records to justify the business operation. Like I stated earlier, this process can be easy using the method that I am going to discuss below.
There are some instances to where you would not need a receipt to justify a purchase. Anything that’s under $75 does not require a tangible receipt but the transaction must be logged. (IRS Publication 535: You can also use what we call Per Diem (standard amount allowed per day) allowance. Each state has a set Per Diem amount that they allow on certain expenses. Travel Per Diem is a set amount for lodging (hotel) that is allowed for your state. A meal per diem is also a set amount calculated by your state. If your transaction does not go over the per diem amount, you may use that set amount and not have to have a tangible receipt. Remember, this transaction must be logged for your records if you are taking the deductions. The expense must also be necessary for your type of business. Click here to see your state’s per diem rate.
Golden Nugget: If you are traveling out of town to attend a business meeting or business event, and you happen to have family or friends that live in that area. If you had already purchased the ticket to the event or booked the event before the event date, you may stay with your family member and use the per diem rates. This means that you don’t have to pay for a hotel to claim the travel expense. Be careful with this one, make sure you take pictures of your reservation or ticket to show when tickets were purchased or the event was booked. This is one that I overlooked often because I forgot to log the allowance. But all the IRS cares about if you can show proof that the event was booked before the actual event date. And remember to only use the per diem rate for that city. You can google the per diem rate for a specific city if you don’t know what to log. If you are contracted by another company, make sure you check with that company to see if they allow per diem rates before you submit your paperwork. Some companies may require you to turn in all travel receipts to get reimbursed on travel expenses.
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