We get it! Keeping all the receipts for your medical or dental practice can be a real pain, and as bookkeepers we definitely don’t enjoy pestering you to submit receipts for every credit card charge or bank debit. However, when it comes to your taxes and keeping the IRS happy (and keeping YOU free from IRS headaches) it pays to properly document your expenses with detailed receipts and proper bookkeeping records.
What Constitutes Solid Documentation of Expenses?
It’s always best to follow the IRS guidelines for documentation. Each receipt must show:
- when the purchase was made,
- the amount of the purchase,
- the name of the vendor paid, and
- what was purchased.
TIP: The receipt from the vendor is not always enough – make sure each receipt has a written description of what/who the purchase was for.
Aren’t My Bank and Credit Card Statements Enough?
Some practice owners think that bank and credit card statements are enough. SORRY… they aren’t. These statements lack the support needed for deductions as they don’t contain the detail required (remember date, amount, vendor paid, and WHAT was purchased). During an actual IRS Audit, the IRS denied expenses a small business deducted for travel and meals DESPITE the fact the business provided bank and credit card statements that showed charges to airlines and restaurants equal to the deductions. Since their statements did not identify the business purpose for the trips or the other expenses, or the actual dates of the trips and expenditures – they were all denied as a business expense by the IRS. Ouch!
So where am I going with all this? Here’s the bottom line: Keep all your receipts with proper documentation – yes, we truly mean every single one. There are talks of the government adding 87,000 IRS agents; every medical, dental or vision practice owner must be prepared for that knock on the door.
Organization is Key!
So, I’ve made the case for keeping all your receipts, but it’s also important to keep them organized. Please don’t pile them up in a shoebox! You must always keep your business records available for inspection by the IRS. If the IRS examines any of your tax returns, you may be asked to explain the items reported. Proper organization will allow you to quickly reference those items.
There are several systems out there to help you keep receipts organized and be ready for that IRS Audit. Some of the leading cloud-based accounting software systems even have mobile apps that allow you to take a mobile phone picture/scan of an expense receipt and record it in real time.
If you need help tightening up your documentation or would like our recommendation of processes and tools that can help, we’re here for you. Just give us a call us at 844-424-9637 or reach out to us using the form below. We look forward to helping you grow your practice while staying friends with the IRS (OK… maybe that’s going a little to far, but you get the idea 😊)
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