“I can’t wait to go through this box of receipts and manually enter all of the expenses into excel!” said no one ever.
As tiresome and unappealing as it is, appropriate expense reporting processes are critical to a company’s success; not only may excellent cost reporting give several chances for tax refunds, but a lack of expense reporting can lead to major difficulty in the case of an audit.
To ensure that expense reporting is carried out correctly and effectively, it is important to understand the different types of expenses that businesses can incur, and how those expenses relate to tax deduction laws.
Common Business Expenses
Regarding tax deductions, these are the expenses that are deemed ‘ordinary and necessary’ by tax offices.
Media fees for television and newspaper/magazine ads, business cards, flyers, and displays
Bank and Service Fees
Service fees, checking costs, check to imprint, and costs and penalties
Shipping, handling, and mail
Property insurance on office space, health insurance, insurance on computers and supplies, and personal liability insurance
All necessary office supplies, as well as food & groceries for staff meetings, refreshments, toilet paper, coffee etc…
Electricity, natural gas, heating, water, and sanitation
Meals and Entertainment
Business meals (50% of), catering, parties, etc…
- Telephone and Internet
The above expenses could all potentially be eligible for tax deductions, provided that record-keeping practices are thorough. Keep in mind, all of these expenses must be for business purposes; for example, when calculating the total cost of electricity, only the portion of the electricity used for business purposes can be written off.
Unusual Business Expenses
While the more common tax-deductible business expenses are fairly straightforward and easy to figure out, there are certain unusual situations in which it is possible to claim a tax refund; all that is necessary is to be able to prove that the expense is, in some way, beneficial/necessary for the business (and not for personal use).
For instance, there is the case of the stripper named Cynthia Hess, who operates under the stage name ‘Chesty Love’. Cynthia underwent breast augmentation surgery to bolster her career; the surgery allowed her to book more gigs and bring in more tips throughout the night.
The U.S. Tax Court came to the verdict that the surgery was an ‘ordinary and necessary business expense, allowing Cynthia to deduct the expense of the surgery from her income tax. The augmented breasts, the courts reasoned, were the equivalent of a costume or work uniform, and as such were eligible for a tax deduction.
Which Unusual Business Expenses are Deductable?
When it comes to such unusual expenses, the idea is to be able to prove (in court) that the expense is necessary for the business, and is going to be used primarily for business purposes. For example, an accounts manager might try to claim an expensive suit as an ‘ordinary and necessary business expense, stating that the suit improves his image in client meetings, thus helping the business.
In the case of the accounts manager, the suit would be deemed to be too ‘adaptable for everyday use’, and as such, not able to be written off as a business expense.
The stripper’s breast implants, on the other hand, were deemed to not be ‘suitable for everyday use by the courts due to their ridiculous size (56FF); the size of the implants, the courts ruled, meant that they were only truly suitable for business purposes.
In any case, it doesn’t matter how legitimate an expense is if it isn’t tracked properly; the proper tracking of expenses is undoubtedly the most important piece of the tax deduction puzzle.
How to Keep Track of Business Expenses:
Using a Spreadsheet
Here’s how you keep track of your business expenses using a spreadsheet:
First, set up a spreadsheet for expenses to be entered in; it shouldn’t be too hard to find a free template. They all follow the same basic structure, which is having columns for date, expense type, description, income, expense, and tax.
Once your spreadsheet is good to go, it’s simply a matter of holding on to all of your receipts, and manually entering them into the spreadsheet.
If you opt for this method, you have two options:
- At the end of each day, process the receipts that you’ve collected throughout the day. This way, you can have a nice little slice of banality to look forward to every evening.
- Let the receipts pile up, and go through them once a month. This way, rather than distributing the boredom evenly throughout the month, you get to have one afternoon of soul-crushing tedium in which you spend several hours entering numbers into a spreadsheet.
Needless to say, manual expense tracking isn’t the most efficient way (and that’s not even taking into account typing accuracy and lost receipts – anything less than 100% accuracy could mean a potential loss in revenue).
Fortunately, for those of us that don’t harbor a secret passion for data entry, there is a third option…
Using a Receipt Scanner to Automatically Track Expenses
A receipt scanner is an application that, using optical character recognition technology (which recognizes letters and numbers in images), analyses a photo of a receipt and extracts all the expense data from it.
To track an expense using a receipt scanner, simply take a photo of the receipt using your smartphone, and upload to the application.
No typing, no spreadsheets, and definitely no mountainous piles of receipts – all while maintaining speed, usability, and 100% accuracy.
Learn more about our digital expensing
Taking Care of Expense Reports
While compiling expense reports isn’t quite as tedious as the actual data entry of expense tracking, it still isn’t a job that anyone would particularly miss.
If only there was a receipt scanning application that could also automate expense reports in a way that is entirely compliant with tax legislation…
Oh wait, there is…
From simple client lunch or an extended business trip, you probably make some expenses in the course of doing your work. However, keeping up with business expenses isn’t always easy, but we have a solution so it’s no longer a headache.
It all starts with knowing how you should keep track of receipts and expenses. No more concerns about losing a receipt. It’s important to implement a system that not only stores your receipts but also shows you where your money is going.
Implementing a system doesn’t mean you go to an office supply store and buy a business expense logbook. Modern technology allows you to track business expenses much more efficiently and gives you even more benefits.
Let’s take a look at a three-step process that saves you time and money.
1. Capture receipts
Every time you lose a receipt, you’re losing money. You won’t get reimbursed by your company and you cannot reclaim VAT of that purchase. The easiest solution is to take a picture with your smartphone whenever you receive a receipt, so you’ll never lose a receipt.
There are even more benefits – the Rydoo receipt scanner app not only stores a digital copy of your receipt for over 10 years, it also extracts all the relevant data out of the receipt or invoice.
This means you don’t have to type things over again and again. Plus, you can add additional information yourself, like the payment method, the expense category, and even a project.
Whenever you receive a digital receipt, like an Amazon invoice in your mailbox, for example, you can easily forward that receipt to Rydoo. Rydoo will once again extract all data and the receipt will be available in your online account.
2. Manage business expenses
Whenever you capture a receipt, an expense is created and is available in the mobile app and web app.
The web application is the place where you can manage your business expenses. You get an overview of all your expenses, which you can filter by a category, projects, payment method, etc. All this data can be summarized in several ways.
You can send one or more expenses to the person responsible for approval. This means every expense can be approved or declined one by one, and once declined it cannot be included in an expense report.
3. Report expenses
Normally reporting business expenses can take you a couple of hours a month. You type over your expenses in an Excel sheet, hope you don’t make any errors, and then attach your receipts to the expense report. Once submitted, you hope everything gets approved, or the expense report is sent back to you and you start all over again.
Now, this process belongs to the past. With Rydoo you don’t have to type an expense report ever again!
Whenever you want to report your expenses you can generate an expense report of all approved expenses.
Reimbursement or accounting reports can easily be generated. Using the smart filters, you can easily generate an expense report and export it to popular digital formats such as PDF, CSV, or XML, or you can export the expenses directly to popular online accounting software such as FreeAgent, FreshBooks, QuickBooks, Sage, etc.