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
Recipe for Success: 5 Must-Have Ingredients of Restaurant Bookkeeping
Editor’s Note: This post was originally published in September 2019 and has been revamped and updated for accuracy and comprehensiveness. As a busy restaurateur, it’s easy to push restaurant bookkeeping tasks to the bottom of your priority list. After all, you have better things to do – right? Not so fast. Restaurant bookkeeping is an essential function for businesses large and small, as accurate, reliable numbers are essential for sound decision making. Also, there is the whole matter of taxes to consider. Safe to say, it’s better to get things right the first time with bookkeeping, instead of paying for your mistakes later on. To help get your restaurant accounting processes on the right track, we have assembled the following five tips. 1. Record Sales Daily It’s dangerously easy to fall behind on recording your sales. In fact, one of the reasons that bookkeeping for restaurants is often a mess is simply because owners and managers fall behind on basic tasks. To stay up to date, make a habit of copying or importing the sales from your POS system into your accounting software each day. What you’re aiming for are books that correlate with your bank statements. If you save up all those credit card charges for a weekly or monthly deposit, you’ll have a hard time doing analysis later. Ideally, your accounting software and POS system are integrated so that this is done automatically. At xendoo, we integrate your bank transactions with your books, so data entry is always up to the minute. Automating this process not only saves you the time of doing the work manually but also greatly improves accuracy. 2. Reconcile Bank Statements Every Month Yes, your bank statements should be reconciled every month. No, it’s not a good idea to let them sit around for 3, 4, 5, or more months. If you’ve forgotten to enter a payment or a sale in your books, but that payment or sale has been processed by your bank, it will be easier to correct the error if you catch it quickly. In an extreme case, not knowing how much you really have in the bank could lead to bounced checks. For every account that you receive a monthly statement — bank, credit cards, lines of credit, and loans — compare what their statement says with what your books say. If there are discrepancies, track down what happened and fix it. Of course, if you outsource bookkeeping to a service like xendoo, you can keep up with this task while keeping your personal schedule open for other responsibilities. 3. Pay Your Bills Promptly Vendors love customers who pay on time – or even early. Doing so will get you better deals and early payment discounts. On the flip side, being late will rack up interest charges. Staying on top of your bills, along with managing labor costs properly, are keys to keeping your financial house in order. To make sure this happens, you should have a reliable Accounts Payable process in place. Your A/P system will record invoices, pay bills online with a credit card or digitally generated checks, and automatically enter the expenses in your books. Record new invoices once or twice a week and make payments once per week to stay current. 4. Take a Close Look at Your Financial Reports Anyone can quickly glance at the bottom line of a financial report—but those numbers only tell a portion of the story. It’s the details that you need to understand, and those can be gathered if you take the time to read through your restaurant bookkeeping reports carefully. Your profit & loss statements and balance sheets can reveal crucial statistics for a restaurant business such as: Profit margin: gross profit ÷ total revenue Sales vs. cost of goods sold ratio Prime cost: ideally food + beverage + labor = 60% – 65% of total sales Compare current profit & loss to previous months and years Profit margins are notoriously tight in the restaurant industry. Having current information about your financial health is just as important as creating tasty food or offering great service. That’s why xendoo guarantees delivery of your P&L statement by the 5th business day of every month. 5. Nail Your Taxes. It’s worthwhile to track down as many tax tips for restaurants as you can find since taxes make up such a notable expense every month. One of the best ways to stay on top of taxes and avoid paying more than is necessary is to keep detailed, accurate records of everything that takes place in your business. Extra Ingredient: Outsource Your Payroll Payroll processing can be quite time-consuming, especially given the complex shift scheduling of most restaurants. It also comes with high penalties if you make mistakes in calculating payroll taxes, or don’t file the taxes on time. Payroll services are generally affordable, and can often be bundled with other accounting services. xendoo offers packages that include payroll processing for a budget-friendly flat monthly fee. Documentation is the name of the game in accounting, yet many restaurants – and businesses in other industries – fall short when doing their own bookkeeping. Working with xendoo is a big step in the right direction when it comes to documentation and record keeping. And, of course, xendoo can manage your tax filing as well, so there is nothing lost in translation when going from one service to the next. As an all-in-one bookkeeping and tax filing solution for your restaurant, tax season will no longer feel like the nightmare it once was [av_sidebar widget_area=’Blog Post Disclaimer’ av_uid=’av-om2w’]
How Your Small Business Can Prepare for Florida’s Minimum Wage Increase
In recent years, we’ve seen a reopening of the debate over minimum wage. Advocates are currently pushing for an increase to $15.00 per hour by 2026, with the door open to possible increases in the years after that. If you’re a worker, this is good news. A slight bump in the Florida minimum wage can increase the pay you receive, compensating for rising costs of living and other expenses. However, if you’re a small business owner, this wage increase can lead to tough decisions. Unless you’re a corporate giant, it can be tough to maintain your current roster of employees if you have to pay them more. In this post, we’ll help you to prepare for the coming changes in the Florida minimum wage. We’ll also provide suggestions about the best ways to navigate the road ahead. What is the Current Florida Minimum Wage? As of January 1, 2021, Florida’s minimum wage has increased from $8.56 per hour to $8.65 per hour. Tipped employees have seen a recent increase in their wages, rising from $5.54 per hour to $5.63 per hour. According to federal law and in some states, like Florida, employers may pay tipped workers less than the mandated minimum wage. This is called a “tip credit” as employees earn enough in tips to make up the difference. The “credit” is the amount the employer doesn’t have to pay. So for employers, the applicable state or federal minimum wage minus the tip credit is the least amount the employer pays tipped employees per hour. If an employee doesn’t make enough tips during their shifts to earn the hourly minimum wage, the employer has to pay the difference. Are There Plans to Change the Florida Minimum Wage After 2021? These changes will not stop in 2021. In November of 2020, Florida residents voted to raise the Florida minimum wage to $15.00 by 2026. The minimum wage increases will take place in a phased approach, raising the minimum wage each year on September 30. The proposed schedule will run as follows: $10.00/hour on September 30, 2021 $11.00/hour on September 30, 2022 $12.00/hour on September 30, 2023 $13.00/hour on September 30, 2024 $14.00/hour on September 30, 2025 $15.00/hour on September 30, 2026 While there are no specific plans after 2026, the minimum wage increase may increase based on changes to the federal Consumer Price Index for Urban Wage Earners and Clerical Workers in the South Region. How Should Small Business Owners Prepare for Florida Minimum Wage and Paid Leave Increases? If you’re a business owner, don’t panic. At xendoo, we understand the unique challenges facing today’s small business owners. Here are some suggestions on ways that your business can prepare for changes in the Florida minimum wage: Audit Your Expenses How much are you already spending on overhead, supplies, and operating costs? You may be able to cut a few corners with certain expenses or by eliminating wasted spending. The money you save can be channeled into your human resources budget. Determine Your Budget Using these increased wage figures, calculate your new operating budget. Forecasting your operating expenses will let you know what you’re dealing with and provide an idea of what your income needs to be to maintain your profit margin. Update Your Tech Stack A tech stack refers to the digital tools you need to run your business. An update can help you to automate your social media presence, streamline scheduling, or integrate automated forms into your company’s website. These improvements optimize your business without the need for additional personnel or work hours. Check Your Employee Classifications How many full-time employees do you need? How many part-time employees do you need? Of course, you don’t need to start considering downsizing, but at the same time, it can be helpful to consider what your future needs may be. Staff Accordingly You may find that in the future, you can get by with fewer staff members. Perhaps you can rely on part-time staff to fill roles that you currently staff with full-time employees. Gradually Increase Prices Your new operating costs will probably push you to increase your prices to maintain your profit margin. However, raising prices slowly will give your loyal customers time to adjust while still ensuring you get the revenue you need. Outsource Your Back Office Are you still handling your own bookkeeping and accounting? Paying an employee to handle these specialized tasks may put a strain on your operating budget. Instead, outsource these tasks to a company like xendoo. We can keep your company up and running without allocating your employees to do the job. Contact xendoo Today The increase in the Florida minimum wage might mean big changes for your business. At xendoo, we can help you stay ahead of the curve, adapt to these changes, and remain healthy and profitable. We understand the challenges that Florida small businesses face. We can provide small business owners with Florida bookkeeping services that ensure accuracy and efficiency so that you don’t have to allocate precious resources to maintaining the books. We can also help you with your Florida tax preparation, helping you to navigate the laws and changes that are likely to come your way in the immediate future. [av_sidebar widget_area=’Blog Post Disclaimer’ av_uid=’av-om2w’]
Eight Tax Tips for Restaurant Owners
Between accounting for all of your potential deductions and reporting them all accurately, it’s important to have a professional who can help make sure you don’t miss anything. Here’s seven tips to help you get everything mise en place come tax time.