What happens if you get audited and don’t have receipts?
Most small businesses are unlikely to go through an IRS audit, but it’s possible. What happens if you get audited and don’t have receipts to back your expenses? It’s a common question and concern for many business owners. The best way to avoid headaches during an IRS audit is to keep accurate business records and bookkeeping year-round, including tracking receipts. Receipts are a paper trail for your business transactions and taxes. Without them, it’s harder to prove your tax deductions and other records are accurate. However, forgetting or misplacing receipts happens, especially when you’re busy running a business. The IRS regularly deals with missing receipts, so there are guidelines for what businesses can do if they don’t have receipts. xendoo’s bookkeepers and CPAs have years of experience managing business records. Below, learn everything you need to know about IRS audits and receipts. Table of contents Why do businesses need receipts? Receipts are records and proof of payment for the income and expenses your small business claims on tax returns. Without receipts, you may not be able to prove that a business transaction took place. Businesses should keep receipts for record-keeping, but also to claim tax deductions and credits. For example, if you’re traveling away from home for a business trip, you could deduct travel expenses, which would save you money on taxes. However, you’ll need to prove that the travel was for business purposes and keep receipts for items like: Receipts businesses should keep Receipts aren’t the only records businesses should keep; they help you track your income and expenses. Companies track a lot of receipts. Some examples of costs that you’ll need receipts for include: Since this isn’t an exhaustive list, it’s best to track all your business receipts and update your records regularly. To make the process simpler, many small business owners use business expense tracking and receipt apps. A bookkeeping service can also advise you on which records and receipts to track (and in some cases, do it for you). What happens if you get audited and don’t have receipts You have several options if you’re audited and don’t have receipts. Because the IRS regularly deals with missing receipts, there are standard steps businesses can follow. In most cases, you can track down receipts or provide other documents, which we’ll outline later, to prove an expense. The worst-case scenario is that the IRS may remove some business tax credits and deductions you claim. Audits aren’t as big a deal as movies and the media make them out to be, especially if you keep organized business records. There are many reasons the IRS might audit a business, but most happen due to random selection or tax errors. If the IRS audits you, you’ll receive a notification letter. From there, you’ll communicate with your auditor and provide the documents they ask for. The IRS doesn’t always share what triggered an audit, but these are some red flags: Although tax professionals and CPAs are familiar with tax laws and can help you navigate an audit, they focus on avoiding audits first. Business tax services prepare and file taxes for you, so they’ll catch inaccuracies and mistakes before you send tax returns to the IRS. What to do when you don’t have receipts If you don’t have receipts and you’re worried about an IRS audit, you have two options. If you don’t do either of the above options, you’ll likely take the loss of deductions or credits. Depending on your situation, you may need to pay IRS fees. Let’s look at the steps you can take when you don’t have receipts. 1. The Cohan rule Missing receipts are so common that since the 1930s, a legal rule has outlined options for taxpayers who don’t have them. It’s called the Cohan rule, and in some cases, you can use it to claim deductions if you’re missing receipts. In a nutshell, the Cohan rule says that: The Cohan rule has helped many small business owners prove their expenses when missing receipts. However, the IRS can reject your deductions even if you follow the Cohan rule. For example, you can’t claim the Cohan rule if your deductions include certain expenses like entertainment. You’ll also need to explain and document the: 2. See if vendors will provide invoices and receipts To provide the IRS with documentation, you can reach out to vendors to request duplicate receipts. Since most vendors use online invoicing and billing systems, they’ll have copies of your records. Keep in mind that some vendors might charge a fee for their time to retrieve past invoices, receipts, and other statements. 3. Find checks, credit card, or bank account statements If you’re unsure where you made a purchase or can’t contact them to provide copies, search through old checks and bank and credit card statements. Going through these documents can tell you: You can use this information to reach out to vendors and ask them for receipts or use it to prove your expense is legitimate. Getting copies of the receipts is ideal though, since it will show exactly what you spent money on to count as a tax-deductible expense. 4. Review your calendar and emails Reviewing your calendar and email will help you narrow your search for receipts. When you make a purchase, companies often send payment confirmation and a copy of your receipt to your email. If you know the company’s name, purchase date, or other details, you may find it by quickly searching your inbox. If you don’t, looking through your calendar could reveal where you were on certain days. It’s especially helpful to find when you travel for business so you can claim those travel expenses. Although this method helps you find transaction details, the IRS doesn’t accept calendars or emails as proof of business expenses. 5. Look at location data and maps on your phone A similar method for searching for transaction details is to use location data on your phone. Your phone stores a lot of information
Fallen Behind on Bookkeeping? Here’s How to Catch Up
Tax season can be stressful, especially if your books are behind, inaccurate, or both. We estimate that roughly 25% of small businesses seek information on how to catch up on business taxes and get their financial records in order. The benefits of clean, accurate books extend far beyond tax season. When your books are up to date, your business will be better equipped to make strategic financial decisions, analyze expenses, and manage cash flow. Conversely, when you get behind in your books, it doesn’t just make it harder to prepare and file taxes. Outdated or inaccurate books can limit your ability to cover your expenses, pay your employees, or secure a small business loan. You’re probably reading this because you already know you’re a little behind on books. The biggest decision to make is whether to try to get your books caught up on your own or secure the assistance of a catch-up bookkeeping service. We’ll help you decide by covering the pros and cons of both approaches in this article. The Pros of DIY Catch Up Bookkeeping When you’re considering how to catch up on business taxes, you might decide to handle your own books. That’s not a bad strategy, really, since DIY-bookkeeping offers the following advantages: Costs Less Let’s face it: today’s business owners need to cut corners any way they can. Rather than hire an in-house bookkeeper or outsource your bookkeeping needs to an accounting firm, you can simply catch up on your books yourself. If you’ve already got some experience in filing taxes and managing your accounting needs, this can be an area where you can minimize expenses. For a full overview of the costs of catch up bookkeeping, check out this post here. Intimate Knowledge of Your Business No one knows your business better than you do. When you handle your own books, you’ll have an intimate knowledge of your income and expenses and will be in a better position to make updates and correct errors as you proceed. This consideration might be especially true if you’ve collected a lot of receipts and paperwork on your own. Having these documents on hand can make it easier to record income and business expenses as they happen, and by handling your own bookkeeping, you’ll be better able to identify expenses. Privacy As a business owner, you might be reluctant to hand over your sensitive financial data to a third party. By handling your own books, you eliminate all possible breaches in your data security, and you keep your business information limited to your eyes only. The Cons of DIY Catch-Up Bookkeeping There’s a reason that so many small businesses outsource their needs to a catch-up bookkeeping service. While there are many business tasks that you can handle on your own, bookkeeping isn’t always one of them and there are so many benefits to catch up bookkeeping. Business owners often discover that the bookkeeping process can be: Time-Consuming Stop and think about this for a minute. How did your books get so behind in the first place? For a lot of entrepreneurs, it comes down to a lack of time. But if you didn’t have time to maintain your books, how likely are you to find time to catch up on your books? This contemplation actually brings us back to the question of money. Sure, handling your own books will cut down on your administrative expenses, but at what cost? Your efforts are better spent on the revenue-generating activities of your business, not the administrative details of your back office. Confusing It can be a challenge to get books caught up in time for tax season. Accounting terms and software tools aren’t always easy to navigate, especially without some degree of specialized training. And that’s to say nothing of the jumble that can occur when you get behind in your books. This confusion is why it’s best to rely on an accounting professional who knows how to catch up on business taxes. They can sort through the mess on your behalf and bring clarity to your books, so you don’t have to sweat the process when it comes time to pay your taxes. Inaccurate The more tasks you’re juggling, the easier it is to make mistakes. But errors in your books can cost you, especially when it comes to tax preparation. Reporting errors can change the actual amount of taxes you owe, and if you underreport, you could be subject to penalties. Having access to a team of financial professionals can ensure that your books are fully up-to-date, as well as free from any inaccuracies that can cause problems for your business. Plus, a financial professional may be able to help you maximize your deductions, saving you money and enhancing your profitability. Get Started Now If we’re honest, most of us make a plan to get started “tomorrow.” But by the next day, we put it off once again. The best time to get started is now. With tax season looming on the horizon, you can’t afford to wait for another “tomorrow.” In fact, the more you put it off, the more your overdue books can snowball into an even messier problem. This time crunch means that whether you plan on catching up on your own books or relying on a professional service to provide catch-up bookkeeping for small business, you’ll want to get a plan in place so you’ll be prepared for tax season. How to Catch Up on Business Taxes Faster Than Ever The expert team at xendoo has already provided catch-up bookkeeping for small business owners across the country. We can bring your books up-to-date so that you’ll be prepared for tax season and put you on the road to greater financial control. How much does catch-up bookkeeping cost? Your final price depends on how far behind you are, but xendoo can provide catch-up services starting as low as $295. The real value is found in the peace of mind you get, knowing your
How Much Does Catch Up Bookkeeping Cost?
When you get behind in your books, you might find yourself sweating a bit. In addition to being worried about how you’ll get caught up, you may also be concerned about the catch-up bookkeeping price you’ll have to spend to bring your financial data up-to-date. Most business owners find that catch-up bookkeeping services are well worth the price. But before we cover the actual cost of a catch-up bookkeeping service, let’s explore the reasons why businesses should consider relying on an accounting firm to ensure that their books are clean and accurate. Why Catch-Up Bookkeeping Is So Important What is catch-up bookkeeping? As the name might suggest, catch-up bookkeeping is the practice of bringing your company’s financial records up-to-date, ensuring that all income and expenses are recorded so that you can have an accurate picture of your company’s financial health. Why is this so important? When your books are clean and current, your business will benefit in the following ways: Simpler Tax Preparation Your business taxes depend on your income. Having accurate books ensures that you’ll be able to accurately report your income for the preceding tax year. If you get books caught up before you file your taxes, the tax preparation process will be simple and straightforward. Plus, you’ll be in a better position to receive tax deductions based on business expenses from the past year. Conversely, your outdated books can lead to errors, which can lead to major expenses down the line. For example, if you underreport your income, you’ll have to complete additional paperwork to make the correction. It’s possible you’ll face an additional penalty. Further Access to Business Loans Small business loans can be used to grow your business, expand your inventory, or cover marketing expenses. But before you can be approved, your lender will likely ask for your current financial statements. Your company’s financial health will determine the kind of loan you receive and how much you qualify for. If you’re behind on books, you won’t be able to properly communicate your existing assets, which could jeopardize your eligibility for a business loan. Failure to keep up on your finances could limit you to a smaller loan or a worse interest rate. Better Strategic Focus Every entrepreneur should regularly review their financial performance to find ways to hone their strategies. Accurate financial records can highlight areas in which you need to cut expenses, while also illustrating patterns in spending. With this information in hand, you can better plan for the future. In other words, it’s essential to have accurate books when you want to refine your company’s strategies. Your financial performance can be used to set long-term and short-term goals, indicating when you’ve reached these benchmarks. Healthier Cash Flow When you have an accurate record of your company’s income and expenses, you’ll better understand the capital you have to work with. That way, you can manage your cash flow, directing funds toward particular projects or expenses that are likely to bring a high return. When your books are outdated, you’ll be in the dark when it comes to your working capital. Not only does this hamstring your ability to make future decisions, but it can also prevent you from covering your expenses or paying your employees on time. Catch-up bookkeeping can get you back on track while giving you a working knowledge of your available assets. Greater Peace of Mind Finally, there’s simply not enough to be said for the peace of mind that comes from having your financial data handled by a team of professionals. While it could be tempting to try to take the time to catch up on your books by yourself, even the most skilled entrepreneurs can struggle with the terminology and intricacies of accounting software platforms. By partnering with an accounting firm, you’ll gain confidence in your business, knowing your books are checked and maintained by trained professionals. With this weight off your shoulders, you can put your focus where it belongs — managing your business. The Cost of Catch-Up Bookkeeping No matter how behind you are in your books, you can rely on a catch-up bookkeeping service to help you get up to speed. But at what cost? Let’s compare the catch-up bookkeeping price to the value you receive from these services. Catch-Up Bookkeeping Price How much does catch-up bookkeeping cost? Costs can vary a bit, based on the company you choose to use, as well as how far behind you are in your books. The cost can also be impacted by how well you’ve organized your financial records and receipts beforehand. For example, it can take time to reconcile your bank accounts, which can drive the cost of these services higher. At xendoo, we proudly offer catch-up bookkeeping for small businesses starting at $295. Prices can increase depending on the needs of your business, but you’ll have access to our reliable team, who will work hard to make sure your books are clean and accurate. Catch-Up Bookkeeping Value By now, you’ve probably come to recognize that the small business bookkeeping price is well worth the return on your investment. While it’s possible to update your books yourself, most entrepreneurs lack the time and patience to address several weeks’ worth of outdated entries. Besides, your focus belongs on the activities that can expand your business, not on all of the administrative details! The cost of catch-up bookkeeping for small businesses is therefore a relatively small price to pay, as it can let you focus on setting goals for the future while a financial team sorts out your past. Do More, Worry Less At xendoo, we believe that entrepreneurs should spend their time dreaming about the future, not losing sleep over outdated books. Rather than trying to fix the problem on your own, consider contacting our team of financial experts. We can provide you and your business with superior service, ensuring that your books are clean, up-to-date, and accurate. When you sign up today, you’ll get 30 days to
3 Tips for Catching Up Your Books
Falling a little behind in your books is no big deal. After all, you can always catch up tomorrow, right? But how many “tomorrows” in a row does it take before you lose control over your incoming and outgoing expenses? Before long, your overdue books are hanging over your head like that project you forgot to complete in middle school. If your hands are already sweaty from the mere thought of catching up on your books, you’re not alone. Nearly 25% of businesses are behind in their books. Thankfully, we can help. Today, we’ll offer you three tips for catching up on your books and getting you back in the game. Why You Need Current Books Business owners wear many hats. “Bookkeeper” should never be one of them. Some owners handle their own accounting, thinking they can do it all. Others cut corners, trying to save expenses where they can. Nearly all of them live to regret this decision. Don’t be one of them! Here are some of the reasons why you need current books: Tax Planning Overdue books will cripple your business once tax season rolls around. If your books are not up-to-date by the time you file your taxes, you don’t just need to catch up books and data; you also run the risk of mistakes, audits, penalties, and late fees. Filing an extension might sound like a solution, but it can cause your problems to snowball, creating a bigger mess than you had before. Long-Range Planning Without current books, you’ll have no clear picture of the health of your business. Keeping your books up-to-date will help you understand your cash flow, which can help you to make strategic plans and grow your business in the future. Business Loans If you need a business loan, your lender may ask for a recent financial report showing your income and expenses. Staying current with your bookkeeping will allow you to provide this documentation and increase your chance of receiving these funds. Step 1: Organize Key Documents One of the best tips for catching up your books is to stay organized. You’ll want to verify that you have the appropriate documents to record your company’s income and expenses. If you’ve fallen a bit behind, you’ll want to organize your key financial documents, including: Customer Invoices How much money have you taken in? Your income will be reflected in your customer invoices. Organize them by date, and make a note of any outstanding invoices, if any. You’ll also need to pay attention to your company’s accounting method. In a cash basis business, the invoice is sent to the customer once they’ve paid. But for accrual accounting, you’ll record the income when the sale occurs, even when the customer doesn’t pay until a later date. Debt Collections Unfortunately, many businesses will have customers who don’t pay their invoices. For accrual accounting businesses, you may have to chase down your delinquent clients. Technically, you can deduct the cost of bad debt from your tax return, but first, you’ll have to demonstrate that you took reasonable steps to collect the money you’re owed. Besides, it’s better to collect these debts than to accept defeat at the hands of non-paying clients! Business Expenses and Receipts What are your expenses? If you’ve saved your receipts, it should be easy to calculate and record your business expenses. Make sure to separate business and personal expenses, especially since these will represent different deductible income for tax purposes. Vendor Accounts Make sure you have a copy of every bill you’ve received from your suppliers. These expenses will appear on your year-end statement, so it’s very important that you have copies of these documents. If you discover you’re missing a bill or invoice, contact the vendor, and they may be able to send you a copy. If you’ve missed any payments, make sure to take care of this as soon as possible so you can remain in good financial standing. Employee Records If your business has employees, you’ll need to complete the associated paperwork. This is important for them, but it’s also important for your business. If you paid a contractor more than $600 over the course of a year, you’ll need to send them a W9 and have them return it to you. A W9 form requests the contract employee’s information, which you’ll then use to send them a Form 1099. This reports how much you paid them during the year. Company employees will require W2s to show their yearly earnings. These documents will be important for tax planning, but the income your employees receive will also be recorded among your company’s expenses. Step 2: Reconcile After you’ve followed the above tips for catching up your books, you’ll need to reconcile your bank accounts and financial records. When reconciling, you’ll compare each transaction from your bank statement with the same transaction in your company’s accounting records. Each transaction should be the same. If not, you’ll need to fix these errors so that your bank statement matches your company’s books. In some cases, you’ll have to return to the previous step, since some errors may be the result of outstanding customer invoices or unpaid bills. Reconciling your books can therefore be a laborious process, but it can highlight discrepancies in your income and expenses to help improve the health of your business. If this process sounds time-consuming, it’s because it is—especially if you’re behind in your books! You can farm this process out to a bookkeeper or a CPA, but they may charge for all of the time spent on this relatively menial task. For some owners, it may be worth this added expense, especially if you need to catch up your books as fast as possible. Others might reconcile their books beforehand to save the account time and money. Step 3: Have a Bookkeeper Help You (or Hire a Tax Professional to Review) Finally, you may want to have a bookkeeper help you. Financial professionals will understand these tips