The foundation of solid business record keeping is learning to track your expenses effectively. It’s a crucial step that allows you to monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and support what you report on your tax return.
Right from the beginning, you should establish a system for organizing receipts and other important records.
There are five types of receipts that you should pay extra attention to:
Meals and Entertainment: Conducting a business meeting in a cafe or restaurant is a great option, just be sure to document it well. On the back of the receipt, record who attended and the purpose of the meal or outing.
Out of Town Business Travel: The IRS and CRA are wary of people claiming personal activities as business expenses. Thankfully, your receipts also provide a paper trail of your business activities while away.
Vehicle Related Expenses: Record where, when, and why you used the vehicle for business, and then apply the percentage of use to vehicle related expenses.
Receipts for Gifts: For gifts like tickets to a concert, it matters whether the gift giver goes to the event with the recipient. If they do, then the expense would be categorized as entertainment, rather than a gift. Note these details on the receipt.
Home Office Receipts: Similar to the vehicle expenses, you need to calculate what percentage of your home is used for business and then apply that percentage to home related expenses.
Starting your business at home is a great way to keep overhead low, plus you’ll qualify for some unique tax breaks. You’re able to deduct the portion of your home that’s used for business, as well as your internet connection, cell phone, and transportation to and from work sites and for business errands. Any expense that’s used partly for personal life and partly for business must reflect the mixed use. For instance, if you have one cell phone, you can deduct the percentage you use the device for business. Gas mileage costs are 100% deductible, just be sure to hold on to all records and keep a log of your business miles (where you’re going and the purpose of the trip).
