This Could Happen to Your Business’s Tax Deductions and Here’s How to Avoid It
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A major benefit for businesses come tax time is the ability to deduct certain business-related expenses. These expenses can include office supplies, business subscriptions, equipment purchases, and even food bought for the office. But what many business owners don’t realize is that unless they properly document these expenses, the IRS does not have to grant the deduction.
This is what happened to an S-corporation who tried to deduct several expenses for travel and meals, independent contractors, and office supplies. The IRS denied these deductions and the case ended up in court.
The verdict held in favor of the IRS because the company did not provide sufficient documentation of the purpose of the expenses. For the travel-related expenses, the company provided bank and credit card statements that showed the amount spent, but failed to record the purpose for the business trips as well as the trip dates.
For the expenses paid to the independent contractors, the company provided carbon copies of the checks that showed who was paid, but did not include what work was done. Similarly, the company provided bank statements showing how much was spent for office supplies, but failed to include specifically what was purchased.
Why is this Important for You?
Don’t be caught off guard and miss out on deductions because of insufficient documentation. As the owner of your small business, you are responsible to make sure that you have a system in place that will record the purpose for all your business-related expenses. Having this back up documentation is essential in the case of an IRS audit.
Don’t know where to start? Thankfully, we are bookkeeping experts and know exactly how to help your small business stay on top of your financial records so that you can do what you do best – running your business. Contact us today and receive 1 month of services free!
Email us today at info@jrbookkeepingservices.com.
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