While all kinds of gremlins can turn up in your books at tax time, those that originate with staff spending can be the most frustrating.
Tax authorities want every purchase properly documented. One missing receipt or misallocated purchase may not seem like a big deal, but if you have multiple staff members making purchases, it can add up to a lot of headaches at tax time.
Here are a few ways you can prevent those foul-ups from happening.
Authorize Spending in Advance
Many employees—most, according to some estimates—don’t read their company’s expense policies.
Make sure people know how much they can spend, when they can spend it, and what they can spend it on. And make sure they know this before they spend any money.
There are corporate cards that let you build these limits into the card’s functionality; any attempt to use the card for an unauthorized purchase will be denied.
This helps ensure that a staff member’s purchases are compliant with company policies, industry regulations, and tax laws.
A non-deductible expense can have little chance of being made, let alone, turning up in your records.
Track Spending and Enforce Policies in Real Time
It’s one thing to bring in snacks, drinks, and cake for a birthday party. It’s another to bring in a caterer.
To avoid expensive surprises, and make sure spending is compliant with company policies, it helps to have real-time visibility into employee corporate card usage.
If your corporate card platform gives you the functionality to set rules and block over-limit or unwarranted purchases, use it. This functionality also helps reduce expense fraud. It’s estimated that up to 85% percent of employees admit to cheating on their expense reports, and 82 percent are never caught.
Build Flexibility Into Your Policies
Sometimes employees have a legitimate need to make unusual or unplanned purchases. For these situations, you need the ability to allow extraordinary purchases on an ad-hoc basis.
Ideally, users should have the ability to request funds for extraordinary purchases from within the corporate card software. Such systems automatically document the request and streamline approvals. And if the need is urgent, the request doesn’t get lost in an inbox.
Once the user makes the request, the administrator receives a real-time alert. Then they can authorize and release funds for the purchase right through a website or mobile app.
And when the IRS comes calling, all the necessary documentation is right there.
Make Sure Every Purchase is Properly Allocated
Every time you claim a business expense on your tax return, the IRS has a right to question it.
If your spending is properly allocated, if your company’s records accurately reflect the nature and purpose of the business expense, you have less to worry about at tax time.
Finance people know this, but the people using your corporate cards may not. Or they may not know how to accurately report their spending and leave it to finance to figure out.
Imagine a non-deductible personal expense misallocated as a deductible business expense. Or a dinner with a client may go to an accounting code that is 100% deductible instead of one that is only 80% deductible. If finance doesn’t catch and correct these mistakes, they can trigger all kinds of trouble from the IRS.
To keep employee spending from becoming a tax headache, allocations have to be idiot proofed.
Fortunately, many corporate cards come with reporting software that limits the accounting codes an employee can use. The employee reports the spending and accounting code right at the purchase through a mobile app. The app will even let them submit receipts through their phone’s camera.
This greatly minimizes the chance of an error turning up in the expense report. In fact, you may not even need expense reports at all.
Replace Expense Reports with Spend Tracking Software
Expense reports are a costly pain in the neck. Global Business Travel Association says that the average report takes 20 minutes and costs $58 to process.
And still 19%, almost one in five, have errors. Those take an average of 18 minutes and $52 to correct.
The IRS doesn’t need to see expense reports. They just need to see that you’ve properly documented the purchase and allocated it to the right expense category.
If your software lets users report purchases, photograph receipts, assign accounting codes and submit them through a mobile app, you have all the documentation the IRS needs. The process can be so simple and intuitive, users can submit their information at the point of purchase.
Spending data is always up to date, and you can generate the reports you need to document the spending for taxes.
Integrate Your Spend Tracking Software with Your Accounting Software
Spend tracking software can keep your purchase records up to date. But that data still has to get into your accounting records.
The simplest, fastest way to complete this data transfer is by using spend management software that integrates with your accounting system.
This lets finance teams review the purchase and reconcile them with a one-click. Then purchases get a recorded accounting system immediately.
Since there’s no manual transfer of data, you can rest assured that the financial data is accurate, consistent, and up-to-date.
Come quarterly or annual tax time, there won’t be a stack of expense reports on your desk to trip you up or delay your filing.
Streamline and Mistake-Proof You Spend Management System Now
Today, business moves too fast and has become too complicated to rely on the manual processes that still plague many small and medium-sized businesses.
Many solutions are readily available solutions, and some cost less than the annual fee that many companies charge for corporate card solutions.
PEX is one such solution. Apply today.