All about expense document requirements and Hubdoc too!

Have you ever heard the saying “you have to spend money to make money”?

In a business setting, it’s often true. Every business no matter the size will have basic expenses that are necessary to operate and run the business. We’ll save the discussion about my philosophy spending money on expenses for another day.

But for now, allow me to let you in on a little secret – bank and credit card statements are not enough to substantiate business expenses by themselves. Keep reading find out the requirements for keeping track of supporting documents for business income and expense transactions. 

Who would potentially need or request to see supporting documentation?

You. As the owner, you should be concerned about when, how, and where money is being spent in your business. This information can be tracked various ways that will help you to make business decisions.

The IRS. They may request documentation under a tax audit, with which it’s on you as a taxpayer to prove the expense was in fact business related. 

Other state authorities. The Department of Revenue or Department of Labor, for example, may need to see records related to sales tax or employment taxes. 

While a bank or credit card statement will give you the basics about the transactions, date, vendor, and amount. They do not provide the breakout of the specifics of the purchase, which is necessary to prove the expense was business related.

A quick example may be a Target or Walmart purchase, you can purchase a wide range of items at those stores. Without a copy of the receipt in our records, we can not prove whether we purchased shampoo or copy paper. Therefore, we run the risk of the expense being thrown out during audit. A statement also doesn’t provide details regarding whether sales tax paid, which would be an item the State Department of Revenue may be interested in during a state audit.

The bad news – as businesses owners having the appropriate supporting documentation is something we have to address and make sure we deal with. There is no way to get around it. The IRS has information about it on their  website for small businesses. The good news is that technology has come along way and there are all kinds of tools that we can use to help keep us organized. 

Tools for tracking.

You’re free to pick and develop the method that works best for you and your business. But, here are some of my suggestions.

Most basic system. The most basic thing you can do is to throw all your receipts in a folder by month and put them in a box. If you want to double check, as you do the bank reconciliation for the month, you can make sure you have a receipt in the folder for each transaction. 

Hubdoc. If you want to take advantage of technology, and not have to keep track of all the paper receipts, you can utilize a program like Hubdoc. All you have to do is take a picture of your receipt using the Hubdoc app on your phone. The receipt is uploaded to your account. From there, you can code the expense, have it publish to Quickbooks Online (attaching a copy of the image to the transaction in Quickbooks), and publish it to a cloud document storage system by vendor as a backup. And if you get an emailed receipt, instead of paper, you can simply forward the email to your Hubdoc account (or set up email rules so it does that step automatically).

The simple answer.

Yes. We need more than bank statements and credit cards statements in our records to support the expenses we are deducting for our businesses. I challenge you to get a system in place at works for you and as with any financial aspect of your business, if you need help, I am here for you!