How to Prove your Business Expenses and Deductions to the IRS

As business owners, dealing with the IRS and meeting all their requirements can be a demanding task, especially if this is the first year of our company. We might have a lot of questions regarding how to document, prove, and deduct our business expenses, and we might not know who to ask. That’s why it is important to make sure we have a professional tax advisor, and if they have experience in corporate tax, even better. This way, we will know we are complying with all IRS requirements and regulations, and that our business won’t be affected by any late fees, penalties, or missed deductions.

One of the best ways to prove our business expenses to the IRS is by having a designated account that will only be used to cover such costs. Whether it is a business credit card or a business checking account, having a designated account will help us with in many ways. For one, it will allow us to keep track of our business expenses in an accurate and effective way. It will also work to prove these expenses to the IRS, as no personal purchases should be registered on our business account’s statement.

This doesn’t mean that we cannot use our personal account to cover business expenses, as there is no specific requirement for this. However, it might make it more difficult for us to prove our business expenses to the IRS, especially those for travel and property. One great way to work this out is by keeping expenses logs and recording everything in a very detailed way. This includes recording the time and date of each expense, and recording them at the time, meaning on the same moment of the purchase, and not by the end of the day or, even worse, guessed by the end of the year.

When buying property for our business, choosing from listed property will make the process of proving these expenses to the IRS quite simple and easy. When we talk about listed property, we refer to several items that the IRS has determined to be used for both business and personal use. Items like printers, computers, cellphones, furniture, and vehicles are considered listed property. When we use them, whether it is for business or personal purposes, we should log the time, the date, and the purpose of using a given item. By the end of the year, we should be able to easily determine the percentage used for business purposes. As a result, deducting our expenses will be much easier.

Asking for the receipt of every single purchase we make during the year and storing them in a designated and properly labeled shoebox sounds like an easy and effective way to track our business expenses. However, if we don’t refine this system, we will end up with thousands of receipts and a whole lot of work to do when filing our company’s taxes. Arranging all these receipts by the week or the month can help us give our record more structure. Also, labeling each receipt on the same day of the purchase will make our filing system even cleaner easier, which will simplify our filing process when the time comes.

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