My clients often ask if they need to save their receipts. The answer is always YES! Even if your bookkeeper doesn’t ask to see your receipts, you should always have them saved as backup or proof of the expenses you’re claiming on your tax return. And sometimes just having the receipt isn’t enough. Did you know that it’s best practice to notate the business purpose of the purchase and the person or people involved? For instance, if you buy a tool it’s best to notate what the tool would be used for and who will be using it. If you’re sponsoring a company picnic, notate when the picnic is and that it was for all employees. Remember that more detail is better than less (or none at all).
Another often overlooked area of documentation is vehicle mileage. If you use your personal car for business purposes, you need to log the mileage at the beginning and end of the year as well as all miles you drive for your business during the year and the destination and purpose of those trips. Even if a vehicle is owned by a company and used exclusively for business, there should still be a mileage log where drivers note the starting and ending mileage of the trip as well as the destination and business purpose. Whether you’re using mileage or actual expenses to figure out your vehicle expense for the year, you need to track your mileage either way. Your log may be a spreadsheet, notebook, or other method as long as you track consistently throughout the year.
So what happens if you don’t keep supporting documentation such as receipts or mileage logs? If you’re ever audited, the IRS may not allow you to take some of the expenses you claimed as deductions meaning you would owe more tax. So now is a great time to get in the habit of saving receipts and writing down your mileage. It can be as easy as keeping an envelope for receipts and a small notebook for mileage in your car!