Small Business Shared Interest Group

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  • 1.  Small business expense tracking

    Posted 15 days ago
    Thank you for creating this platform to post ideas and questions about our profession and to collaborate with other peers!
     
    I am a CMA working for a start-up company where I manage all aspects of accounting, including Accounts Receivable, Accounts Payable, Financials, Lease Accounting, and more. Throughout my career, I have worked for various companies of different sizes, often in environments where specific accounting tasks were handled by separate individuals.
     
    My current employer, a software company, started just about two years ago, and I was the seventh person hired. In this role, I face the unique challenge of managing expenses that are often paid directly by managers using their credit cards, with these expenses typically ranging between $15K to $20K. To ensure proper record-keeping, tax compliance, and readiness for future audits, I have been maintaining a practice of requesting receipts for all expenses above a $75 threshold.
     
    As someone who has always emphasized the importance of detailed receipts from everyone, from VPs to assistants, I find myself at a crossroads in today's fast-paced, tech-integrated environment. When I used to travel, I was required to provide receipts for all expenses, no matter how small. However, I am curious about current practices and whether auditors still require backup documentation for routine monthly expenses, especially credit card charges, which constitute the majority of my current expenses.
     
    In a world where we aim to streamline processes and integrate AI tools into our workflows, how stringent are the requirements for maintaining receipt backups for these types of expenses? I want to strike a balance between being flexible and ensuring that we have sufficient documentation for tax purposes and potential audits.
     
    I would greatly appreciate any insights or advice from fellow professionals on how to navigate this situation.
     
    Thank you for your comments and suggestions!
     
    Best regards,


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    Nellyreth Durango CMA - CPA (Colombia)
    Accountant
    Broomfield, CO
    United States
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  • 2.  RE: Small business expense tracking

    Posted 15 days ago

    Nellyreth,

    We are a large international firm and for good internal control we require receipts for all expenses that are to be reimbursed from a partner on down without exception.  As a firm we want to ensure that all payments are in accordance with firm policies and are legitimate.  Also our financial auditors test certain transactions from completeness and accuracy including expense reimbursements.  Finally for tax purposes the documentation serves as the basis for the appropriateness of the expense on our income tax returns and as support for sales and use and property tax audits.

    Good Luck!



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    Allan Lyons
    Director/Manager
    Squire Patton Boggs (US) LLP
    Stow OH
    United States
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  • 3.  RE: Small business expense tracking

    Posted 14 days ago
    Nellyreth,

    Your threshold of $75 for receipts seems high.  Usually, I have seen $25.

    There are expense reporting products out there that allow users to take photos of receipts as they incur the charges.  There is a direct feed from the card company to the reporting software.  This reduces the amount of data entry for your users. They then match the receipt to the charges.  Submitted reports are routed electronically for approvals.  A journal entry to record the expenses can be integrated with your GL.

    Best of luck.

    David Napper, CMA, CFM





  • 4.  RE: Small business expense tracking

    Posted 14 days ago
    Edited by Rob Teitelbaum 14 days ago

    Hi Nellyreth,

    If you're working under U.S. tax law, I would strongly advise reading the IRS accountable plan rules at 26 CFR 1.62-2 and Pub 463. You may also want to peruse Revenue Procedure 2011-47. If you don't get timely receipts for expenses, and you aren't covered by an exception such as a valid flat rate per diem plan or an expense under $75, you may have to report the expenses as taxable income to the employee. This is in addition to any problems you might have substantiating a business purpose for the expense in potential audits of the company's books. No one wants to pay personal income taxes on their business travel costs or office supply purchases. By asking for receipts and enforcing timeliness, you're protecting the employee, and also protecting everyone else in the company who has expense reports by ensuring your accountable plan remains intact.

    My company has a $0 receipt threshold, other than M&IE at government rates. If you incurred the cost, you have to submit a receipt, or write a memo explaining why a receipt wasn't obtainable. But I work for a government contractor and we're subject to far more audit scrutiny than most businesses, so we're probably not a good reference point on the dollar amount. 

    Disclaimer: I am not a CPA and the foregoing should not be construed as tax advice. :)

    Good luck!



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    Rob Teitelbaum CMA CPCM
    Chief Financial Officer
    SC&A, Inc.
    Arlington, VA, USA
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  • 5.  RE: Small business expense tracking

    Posted 13 days ago

    You can never have enough documentation. While there is precedent for the $75 threshold, it is only recommended. Technically speaking, the IRS itself states "Except in a few cases, the law does not require any specific kind of records." (IRS Pub. 583, pg. 12) The records are more for CYA (Cover Your Assets) situations. Therefore, it's always better to be safe than sorry, especially when the IRS is involved.

    There are a number of document management systems out there that allow card holders to scan receipts immediately and upload them so you are not always getting after them when the monthly statement comes around. A couple of them were even present at the IMA conference this year as vendors. As far as company policy is concerned, my clients encompass the entire range of options. I have one client that insists on a receipt for every single transaction regardless of amount. I have another client that does not require any receipt for any charges. It boils down to what the owners are willing to accept as risk in the event of an audit and/or fraud and the associated culture they impart to the company.



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    David Belnap, CMA, CSCA, CPA
    Belnap Accounting
    Hollywood FL
    United States
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  • 6.  RE: Small business expense tracking

    Posted 12 days ago

    Nellyreth, like many start-ups and SMEs, your firm faces similar challenges. Determining the minimum threshold for daily expenses is a decision for management. However, for financial accountability, it's best to get receipts for every expense without exception. This practice promotes transparency and helps prevent fraud and ethical issues. In my view, today's start-ups and small businesses should aim to become large corporations one day, so it's beneficial to practice zero tolerance from the beginning. This way, when audits occur, management and employees will be well-prepared and compliant.



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    Chandrakanth Ananda, CMA
    Senior Accountant
    JTC
    Doha
    Qatar
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