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Substantiating
Business Expenses
Don't Forget to Save Those Receipts
One of the most important things a business
owner can do is to keep good records throughout the year. If the IRS
examines your tax return, any expenses you failed to document could be
disallowed.
Keeping receipts, credit card statements,
bank statements, and cancelled checks is a must. The receipts and invoices
verify exactly what was purchased and when and the cancelled checks, bank
statements and credit card statements verify that the money was actually
spent. Set aside a spot in your office for expenses and sort through them
periodically. Group similar expenses together and total them.
Remember that IRS regulations require specific types of records for
business use of what are called "listed assets," which are items that can
easily be put to both business and personal use. Listed assets
include automobiles, computers, cell phones and entertainment equipment,
such as TV's and audio systems. The IRS requires a record be kept of
business usage of these items, such as a mileage record for a car and
usage log for a computer (unless the item is located in a bona fide office
where usage is presumed to be 100 percent business).
Good recordkeeping will give you a better
idea of the types of expenses you are incurring and what your bottom line
will be. An added benefit is that, when it comes time to file your tax
return, you’ll be more prepared.
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