How many times have you found an old crumpled up receipt hidden somewhere deep beneath the passenger seat of your car or jammed into your wallet? Regardless of how insignificant you think these pieces of paper may be, as a business owner, you must keep your receipts for bookkeeping and tax purposes. Keeping receipts for all of your business expenses will not only keep your bookkeeper sane, it will also assist you and your CPA at tax time in getting an accurate number for your business deductions.
Many of you may be thinking, “Why should we keep our receipts? We’re living in a digital age” or “Why keep a paper trail, if it will only create more clutter? Right?” Wrong. We’ve compiled a list of tips to help you keep accurate, organized records for your business.
1. Keep Every. Single. Receipt.
This point cannot be overstated. It is just as important to keep the $2.38 receipt from Staples for pencils, as it is to keep the $1022.54 receipt for the new laptop you purchased for your business. If you were ever subject to an IRS audit, the auditor will want to see receipts for every expense for which you have claimed a deduction.
2. Make notes on receipts about their business purposes.
This is an especially great idea for dining and entertainment expenses. It can be easy to remember why you bought a copier, but it could be a lot harder to remember who you went to dinner with at that fancy steakhouse three years ago and what the business purpose was.
3. Scan receipts and keep them for at least six years.
The IRS can come looking for documentation to support expenses up to six years back in some cases. Purchasing a scanner and storing them on an external hard drive ensures that you will have adequate documentation in the case of an audit. You can’t count on the ink from a receipt not fading in the next 6 years, so it’s better to be safe than sorry.
4. Take a picture with your Smartphone.
With today's technology, it's easy to say “Forget the receipt, I'll just make a note on the receipt and then take a picture of it.” This is a great idea and there are a whole host of apps for the iPhone and Android that can help you better track your expenses. As long as you save all of these pictures in a safe place (external hard drive, Google Drive, Dropbox, etc.) you will have no problem reproducing these receipts when tax time comes or in the case of an IRS audit.
5. Don’t rely on credit card statements and canceled checks.
Credit card statements and canceled checks are important documents but are insufficient without a receipt to detail the expense. The IRS may see on the statement that you spent $85 at Lowe’s but they don’t know what was purchased on this shopping trip. Statements may be sufficient for your bookkeeper but the detail of the expense is critical for an IRS auditor.
6. Try to avoid using cash for business purchases.
Dave Ramsey may be adamant about using cash for purchases to stay within your budget, but using cash makes it difficult to keep good records for bookkeeping and adequate documentation for an audit. Cash is hard to track, easy to spend and nearly impossible to reconcile with receipts. Stick to debit and credit cards for business purchases to better track your expenses and leave you with adequate documentation to support the expense.
All small business owners know that it can be burdensome to keep track of all those receipts. However, for accounting and tax purposes, you will have to prove that everything expensed to your business is correct and necessary. The extra time and effort it takes to keep accurate records will be worth the extra burden if you were ever subject to an IRS audit.
Need help tracking receipts? Our bookkeeping services will integrate with your business, allowing you to snap a picture of your receipts and email them to us for safe keeping. We can even get you caught up if you've been putting off this important task. Contact us today for help.
Deciding whether to deduct an expense in full or capitalize and amortize it over its useful life is usually a difficult question for small business owners. The accounting treatment of a major purchase can sometimes make the difference between a year-end income statement that shows a profit and one that shows a loss. Business owners don't often understand how each method affects your income statement as well as the tax ramifications of the decision. Here's a breakdown when to expense and when to capitalize.
Capitalizing a purchase
This is an accounting method that delays the recognition of expenses by recording the expense as a long-term asset. Instead of expensing the full cost in the year of purchase, you will spread the cost over an extended period of time, which provides a more accurate picture of your profitability. For example, you decide to capitalize a $20,000 expense and amortize it over a five-year period. Instead of taking all of this expense in 2017, you will record $4,000 per year over the next five years as amortization expense. In order to capitalize an asset, it must have a useful life that extends beyond the current year and you must use the asset to conduct your business. Assets may be fixed assets, such as equipment and furniture, or even intangible assets, such as copyrights and patents.
Expensing a purchase
Deciding to expense a large purchase in the current year can be both beneficial and detrimental to your business. Incurring a large expense will lower your taxable income and therefore reduce the tax liability of your business and its owners. Everyone loves to avoid paying taxes but beware that expensing all of an asset in a single year may prevent you from receiving the benefit of depreciation or amortization expense in the future. You may get a huge tax break in the year of purchase, but could end up owing more money over the next three to five years. Expensing an asset in a single year can also skew your income to expense ratios and provide an inaccurate picture of your company’s profitability.
Deciding to expense or capitalize doesn’t have to be a difficult decision for small business owners. Some companies set a purchasing limit and anything below this amount will be expensed and anything above that amount will be amortized (capitalized). This is a quick and effective way to simplify the decision. Just remember that the item must also have a useful life beyond the current year in order to be capitalized.
Not sure what to do? Contact a reputable bookkeeper, like The Bean Counters Bookkeeping who can not only keep track of your expenses, but advise on the best way to handle large purchases come tax time.
Marketing your business online inexpensively is not hard to do. Many business owners avoid spending money on marketing because they think it's not affordable or worse, a waste of time. The beauty of online marketing is that you can practically market your business for free if you know what to do. That’s why online marketing is so affordable and fun. The barriers to entry are low, and even the learning curve is small. So before you know it, you will bring your business to profit with free or very affordable marketing.
1. List Your Business
There are many directories that are either free or inexpensive that you can join to help market your business. Ensure that the directory you pick is niche oriented, and that it is run by a reputable person so that you are listed with other reputable business owners. You don’t want to be on a list that is associated with spam. Your local chamber of commerce is one such list that you can get on for the price of your membership.
2. Use Social Media Liberally
Social media sites like LinkedIn, Facebook, Twitter, Pinterest and Instagram all have a place in your online marketing endeavors. Well, they might. You have to determine which social media networks will work for you and it will depend on your niche and your target customer. Where do they hang out? Be there.
3. Content Marketing
This is one of your most important marketing weapons in your arsenal. In fact, you’ll use content for all types of marketing including every inexpensive way listed in this article. Content is needed that sells, educates, engages, informs, solves problems, and excites. You need content for all aspects of marketing - up to and including customer relations.
4. Blog Frequently and Consistently
Blogging is a big source of traffic, and in some instances the only source of traffic for many website owners. Not only that, it boosts your SEO which means more people will find your site when they search for your product or service. It’s a great way to get the message out to your customers while not spending much money. You can write the posts yourself or you can outsource blogging. Most people write them themselves when starting out. It can take time to get used to doing it, but writing a post a week can help gain momentum. You'll also want to consider doing longer blog posts, less often, to get results.
5. Remember SEO
If you are not familiar with SEO (search engine optimization), it’s important to learn. SEO changes constantly and is how you optimize your website for search engines. There is both on-page and off-page SEO that you can do for your business. Learn all you can about it. Or hire an expert to provide an SEO audit and strategy.
6. Send Out a Press Release
The good, old-fashioned press release is still a thing, believe it or not. You can still get a lot of value out of sending out free press rereleases if you know how to do it. The trick is to have contacts to which you send the press release directly and not just out to never-never land.
7. Hone and Perfect Your Small Business Website
Your website is your store front, and even if you have a bricks and mortar store front, your website is the store front your customers will likely see first. If it doesn’t look great, why would anyone purchase from you? Spending time on beautiful design, compelling copy, and making sure everything works (don't forget to put your social media links in a prominent spot), is key to giving a great first impression.
8. Join Relevant Communities
Communities are a great way to get your name out there. There are groups you can join on Facebook and LinkedIn, as well as self-hosted and owned “inner circles” and mastermind clubs that you can join. They can help you get known as an expert, as well as help you get more links to your website.
Finding inexpensive ways to market your business online is a great way to get started. But even after you have a profitable business, you’ll want to keep using these inexpensive ways to market your business. If you're wondering if you're business can afford these marketing investments, ask your bookkeeper to find areas that aren't providing a good ROI and where you can cut the fat in your current expenses.
Sometimes the legalities of doing business as an independent contractor can seem daunting. But don’t be overwhelmed. It’s not hard to make a contract at all. A contract can be very simple or very complicated (it’s up to you), but the important point is that you do have one. Many of the reasons you need a contract as an independent contractor are listed below, but take note that this list is not exhaustive. You can likely think of some additional reasons on your own.
To Avoid Misunderstandings
Having a contract to look at when a gray area comes to light about what is expected, can help you avoid costly misunderstandings of what is supposed to be accomplished during the relationship.
To Define the Relationship
While you can’t make a contract stating someone is an independent contractor then treat them like an employee, this can help both parties understand more their roles and place within the work.
To Institute a Description of Responsibilities
If both parties have a good description of what each is to do, when they are to do it, how the deliverables should look and who is going to do what, this can help create a well-oiled machine for your business processes.
To Bind Each Party to Their Particular Duties
If everyone knows what they are supposed to do, the work will go much more smoothly. Define deadlines, the work, and more in this part of your contract to ensure that everyone is on the same page.
To Establish a Time Frame for the Work
Avoiding scope creep is an important part of a contractor’s job. Giving all work a time frame will help avoid problems. You may want a contract for a year for ongoing work, or even an unlimited contract that gives information about what to do if you go over the specified work.
To Help to Secure Payments
Contracts can set in stone the payment you’re expecting and give you recourse if something goes wrong with the payment or work.
To Provide Recourse If Problems Develop
When anything goes wrong, each party can go back to the contract to identify the issue and find the solution to resolve it.
To Establish Professionalism
When you set up a contract and have procedures identified and processes established, you look more professional and people will take your business more seriously.
Contracts are an important part of doing business and can help protect both parties from issues that may arise during the course of the relationship. Not only will the contract help, but the process of creating the contract between the parties can help establish the relationship better. Developing clear, collaborative contracts helps ensure compliance and a great relationship today and in the future. Independent contractors can also benefit by having a bookkeeper. If books are not your specialty, or you simply don't want to deal with the hassles of filing taxes and keeping on top of the paperwork for your 1099 job(s), give The Bean Counters Bookkeeping team a call at 912-376-9918. We'd LOVE to help you sort through your tax liabilities!
When interest rates are fairly low, bank fees usually make up the main source of revenue for banks. In the United States, banks are required to disclose fees and other associated costs for accounts and loans up front. These fees are usually "hidden" in the fine print, which most business owners fail to read in entirety. Not only that, but especially with loans and credit cards, fees are often subject to change depending on various factors. Reading the fine print in detail, and consulting with an accountant or even your lawyer, can illuminate a potential problem down the road and save you quite a lot in the long run.
Common reasons for fees associated with checking and savings accounts include:
It's critical, especially for the small business owner, to be fully aware of any changes or charges associated with their bank. The first step is to review all accounts and make yourself aware of the various fees. The second step is to understand that not all fees are normal, or even the same across various institutions! The best way to find out if you're being unfairly penalized by fees is to ask questions. By not asking questions or obtaining clarification, bank fees continue to increase while your wallet continues to decrease. Don’t just look up your questions online; ask a real person.
It may sound like common knowledge, but with today’s fast paced society many of us skim through documents and sign on the dotted line. Instead, take the time to read and understand all rules both in print and online. To further avoid those unpleasant surprises, mix and match accounts. It may seem like a hassle, but in the long run it’s well worth it. One bank may have a convenience that the other bank doesn’t. For instance, ‘bank A’ may provide free checking and ‘bank B’ may have beneficial small business services.
If you find a better deal at another bank, go to your bank(s) in person and request to close your accounts. Chances are, they'll at least match, or even provide a better offer rather than risk losing your business. This will save you a lot of hassle from having to switch banks.