Are you a small business owner, self-employed or an employee working from home? If YES, this is important for you. While working, you do many large and small transactions, some of which are business expenses. You have a track of significant expenses but tend to ignore or miss out on small business expenses. It creates grey areas while accounting, filing and auditing. The big reason for this is you avoid taking receipts for petty expenses.
Why Are Business Receipts Important?
As a business owner or employee working from home, when you claim business expenses in your tax filing, you must have documentary evidence to justify your claims. This evidence is helpful for you to understand the exact financial position of your business and is of great value in an audit.
Small business owners should understand that the Canada Revenue Agency (CRA) conducts random audits or might conduct an audit for some specific expenses. If you are chosen for the audit, you must be in a position to provide justifiable documents to safeguard your business from heavy penalties. You can avoid penalties by adopting simple habits like taking receipts for business-related expenses, like petrol and food receipts for business lunch, and recording them timely and systematically. It will help you track your expenses for your records and audit purposes.
Important Tips to Organize Your Business Receipts
Say yes to receipts
You are travelling by public transport or your vehicle for business purposes, going on lunch or dinner for business dealing. You can claim all these as a business expenses. For this, you must collect those receipts like tickets, petrol bills and dining receipts. Now, you need to organize these receipts to find them easily.
Make Notes on Your Business Receipts To Remember the Expense
Just collecting the receipts is not enough. Make a note on the back of the receipt about the payment. For instance, while dining out for a business deal you made the payment and collected receipts. But remembering what those dine-outs were for and with whom will make it easy for you and your bookkeeper to record the expense in the correct category.
Go Digital – Digitize Your Receipts for Easy Record-keeping in Long Run
The CRA might ask you for documents as old as six years. Keeping all small receipts safe is a big task. At times, the ink on receipts fades away. To save receipts for a more extended period, take a photograph of them from your mobile phone and arrange it in a proper folder for easy referencing. Also, save the physical copies in a file, as it is a requirement for CRA audits.
Avoid Paying in Cash
If you are doing cash transactions, especially very small ones like emergency office supplies or ordering refreshments for client visits, you can lose track of such transactions. So it is advisable to make a habit of paying online or through cards. Such transactions get recorded with date and time, and their receipts can come in handy with CRA audits.
Maintain a Separate Bank Account for Business
Many small business owners initially use their personal bank accounts for business transactions. In the long run, it becomes tedious to segregate personal and business expenses and could trigger the CRA audit. It would become difficult to explain the business purpose of the expense. You can avoid this by creating separate bank accounts and credit cards for your business. Make it a habit to do all business-related transactions from your business credit card to make it easier to trace the business cash flow.
Refer to Credit Card Bills and Bank Statements to Cross-verify the Payments
The CRA does not consider card bills or bank statements as proof of business spending. It requires proper receipts. Still, you should develop a practice of referring to these bank statements periodically and reconciling them with your books. It will help you segregate the expense head, and you can always cross-verify your expenses.
Review your business receipts. It might not always be possible to arrange your receipts immediately. Make it a practice to set aside a day every month to review your receipts and get a fair idea of your spending. You will understand where you can cut down expenses, increase spending and claim tax deductions. If you leave reviewing the receipts to once a year, you might miss out on many expenses and tax benefits you could claim.
These are just a few tips on how and why you should organize your business receipts. You can practice these habits on your own in most areas. But, as a small business owner, when you are struggling in business activities day in and day out, maintaining records becomes tedious. As the transactions increase, so do your receipts. You can always hire a professional bookkeeper who can work for you daily, weekly or monthly, depending on your business requirement. It will release that extra burden of recording the expenses correctly and help you focus on your business.
Contact Glenn Graydon Wright LLP in Oakville for Bookkeeping and Accounting Services
You are the best person to know your business cash flows. But a professional bookkeeper can help you prepare your journal and ledger entries supported by documentary evidence so you can make the most of your business expenses. We at Glenn Graydon Wright LLP can provide bookkeeping and accounting services depending on your business need and also share insights on any gaps in transactions. To learn more about how Glenn Graydon Wright LLP can provide you with bookkeeping services, call us at 905-845-6633 or connect with us online to set up an initial consultation.