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  • Writer's pictureJillian Ohriner

Receipts and Documentation for Your Business

Maintaining separation of business and personal expenses is key to keeping good structure in your business documentation, but often personal purchases tends to come into play time to time (or more than you intended) and you may be feeling a bit fearful of what’s next. With a few simple changes, this does not have to be difficult! See how you can be ready for what’s next with this year’s tax season. DISCLAIMER: These thoughts and comments are derived from our opinions based on our experience. You should always consult with your tax professional to consider your specific fact pattern.

Receipts Yes, you need to keep all of your business receipts. The IRS will not accept a bank statement or credit card statement as substantiation for an expense. You have to have the actual receipt, or even a picture of the receipt! Option 1 Normally, we suggest purchasing a fan folder for each year. Something like this. Keep your receipts in each divider by month. Then, if you ever get audited and need a receipt from April of 20XX, then you can go back and find the receipts. Option 2 Which is our favorite: Use the QuickBooks Online App receipt capture function! After you make a purchase, you open the app, take a picture of the receipt and then throw the receipt away. QuickBooks will read the receipt and match it to your transactions that have already pulled in from your bank or credit card statement. As you go through the data validation process it will ask you: “You have a charge at Lowe’s for $323.34, and you have a receipt from Lowe’s for $323.34 – should we match these items?” You click yes and then QuickBooks stores the image in that transaction forever. If you ever need to go back and put together some random sample of receipts, all you have to do is search for the transaction in QuickBooks Online and provide the image! Amazing! You can also set up an email address through QBO ( and simply forward any electronic receipts that you receive. It files them away the same way. We use this for our business!

Personal vs Business Expenses It is imperative for business owners to keep business and personal expenses separate. One of the easiest ways to accomplish this is to have a separate business bank account as well as business credit cards (if applicable). All business income and expenses MUST go through business accounts. All personal expenses MUST go through personal accounts. This will ensure that once you reconcile the business accounts that you are certain that all business income and expenses have been accounted for. No searching back through all of your bank statements looking for expenses! There are several ways to get business profits to your personal accounts for use. If you are a sole proprietor, it’s as simple as making a transfer from your business bank account to your personal bank account, and then incurring all of your personal expenses there. There are some legal reasons that prohibit commingling business and personal assets that you can discuss with your attorney. Additionally, if you were to be audited by the IRS, and you have personal expenses in your business account, they will deem all of the expenses as personal (thus not deductible) unless you can prove business purpose. If you don’t have the receipt or adequate substantiation, this could be detrimental.

It is also important to keep income and expenses separately by different activities. Let’s say that husband is self-employed and is in construction. Husband also has a separate business managing some rental properties. Spouse has a knack for design and is an interior decorator. I would NOT recommend combining all of the income and expenses for these various activities. I would suggest having one bank account for each activity. All income and expenses for each go through the respective bank account. At the end of the year if all you have to reconcile is each account, then you should have a near-perfect accounting by activity.

TIP You can either use class tracking in QBO for this or if there is a large volume of transactions/accounts, it may be better to have separate QBO company files for each activity.

Don’t let the end of the year-upcoming tax season worries sink your holidays. We’d love to chat with you on how we can help and get you ready to tackle 2021.

Reach out to us today!

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