At this time of year, everyone’s mind dwells on taxes. Small business owners and entrepreneurs have even more to worry about, especially when it comes to keeping track of their receipts and taking tax deductions. Recently, the Receipts team at QuickBooks Online conducted a survey of 500 small business owners and entrepreneurs asking about their challenges when it comes to tracking expenses.
The results helped to solidify a few things you may have already suspected.
- Keeping track of receipts can be a challenge.
- Knowing what you can and can’t deduct from your taxes (and not trigger an audit), seems a bit vague.
- Business owners are losing out on money by not deducting items either because they’ve lost a receipt for a big-ticket purchase or they just aren’t sure it can be deducted.
Let’s dive into the data and examine the insights we have gained. examine these insights a little more closely by reviewing the data.
Who We Talked To
For context, of the 500 people, QuickBooks Online surveyed, percent of the respondents classified themselves as self-employed while the other 40 percent indicated they were small business owners. Fifty-six percent were women, 44 percent were male, and all were located in the United States.
Approximately one out of 20 respondents (19.2%) have no employees, while a little over 6 out 10 (65%) stated they have at least one employee, but no more than five.
Receipts, Receipts Everywhere!
Of those surveyed, 70 percent of respondents said they’ve lost at least one business receipt in the last month. Losing 12 receipts over the course of a year could have a real impact on your taxes and your business cash flow
And while receipts are mainly kept in secure locations like an office (38.2%) or a designated file folder (40.8%), 14 percent are still keeping their receipts in a shoe box. And only 22 percent are actually storing them digitally (via an app, computer desktop, or phone). Maybe it’s time to upgrade to a new system.
Think it doesn’t matter? Think again: respondents estimated they miss out on an average of $5,000 a year due to a lapse in record-keeping. And the average cost of the item for the receipt they lost is over $10,000. This is real money and can have a big impact on your financials.
The data demonstrated that perhaps one of the greatest frustrations for small business owners and entrepreneurs is determining what exactly can and can’t be deducted.
Sixty-six percent of respondents estimate they are only deducting a maximum of 70 percent of their eligible business taxes every year, while only 15 percent are sure they have maximized their business expense deduction at 100 percent.
And why, you may ask? Forty-one percent stated it’s simply because they aren’t sure what they can and can’t expense. And more than 38 percent don’t take their maximum deductions because they either can’t find the receipt or forgot to ask for one.
There seems to be a pattern emerging.
Low-level of Risk with a High Reward
The good news is over half of those surveyed said they have no concerns regarding an audit. So, perhaps it’s worth expensing those planning meeting-slash-happy hours in order to maximize your return.
Organization Pays Off
If you’re missing large deductions because you can’t seem to keep track of all of your expenses, you’re definitely not alone.
Aside from the stats stated above, it’s also important to note that nearly 2 out of 10 survey respondents feel completely disorganized when it comes to record and receipt-keeping. And when asked to rank the most important reasons that they keep receipts, small business owners and entrepreneurs were split down the board. Mostly, it was to prepare for an audit, or keep track of product warranties, followed closely by being able to deduct expenses on their taxes. Others were more interested in keeping a running tally of how much they’ve spent on business expenses throughout the year.
One of the most encouraging results from the survey centered around areas for improvement and growth. More than 30 percent of the respondents stated that they wanted a better system to help them keep track of and store their receipts.
You Deducted What Now?
Despite the uncertainty surrounding some deductions, respondents were able to tell us about their more – ahem – odd deductions. Among the highlights:
- Inflatable Snowman
- A Dog
- Gambling Losses
- Lotto Tickets
- Goat Food
If you’re not afraid to deduct a donkey, then deducting the depreciation for a computer shouldn’t be intimidating.
For more details on this survey by QuickBooks Online, click here.