Maximizing Tax Deductions
Treat Your Receipts the Same as You Treat Cash
Small business owners may be surprised to learn that losing an $80 receipt is the same as losing a $20 bill. Here's one way to save more money come tax time.
The president of a small construction company was notorious for losing receipts for purchases. After a trip to the builder’s supply store where he’d buy hundreds of dollars in fixtures or hardware, the receipts would end up being thrown away with the plastic shopping bags.
Those he managed to hold onto until he reached his truck would wind up on the floorboard, and eventually flutter away one afternoon on a dusty construction site. Others might make it into a file folder mixed with other folders on the dashboard and wind up in a cabinet filed with the wrong project.
Even when they did make it to the bookkeeper’s desk, cryptic product codes on cash register receipts made it impossible to tell if the purchase was for plumbing or paint. He may have purchased hundreds of dollars in materials for two or three jobs, but there was no way to tell what purchases should be charged to which customer.
Having to borrow money to send to the IRS one year finally got the contractor’s attention. His accountant’s analysis of his careless habits estimated the company was losing thousands of dollars a year in legitimate tax deductions and failing to bill customers fully for the costs of extras that should have been reimbursable.
To help this particular client, the accountant suggested he carry an empty checkbook cover with a pen in it to use as a receipt wallet. The bookkeeper was also instructed to ask for the contents of the receipt wallet daily. It took months of constant reminders (perhaps nagging) to get the man into the habit of taking the receipt wallet with him daily, putting every receipt in the wallet, and writing job names on the receipts.
Luckily, the contractor came to understand that every $80 receipt was the equivalent of a $20 bill come tax time. And some receipts were worth their face value in reimbursements from customers. He began to treat receipts as if they were money, which in effect, they are.
Few small business owners have been as challenged as our contractor. Yet many small business people have loose bookkeeping practices that can result in legitimate business expenses being overlooked.
If you think you may be in that category, you may be well advised to have your accountant spend a few hours reviewing your internal bookkeeping practices to see where you may be missing expenses. It’s quite often possible the money saved by capturing previously missed tax deductions can more than pay for the accountant’s time. (If you don’t have an accountant, get references from owners of businesses similar to yours.)
In the event your accountant gives you a clean bill of bookkeeping health, then that’s one more thing to help you sleep well at night.
Related Articles:
Managing Project Profitability
Recognizing Earnings Accurately
