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3 Steps to Capturing Tax Savings with Your Bookkeeping

Author: Tom Wheelwright

Copyright (c) 2010 Tom WheelwrightThis week, I'm picking up where I left off last week which is using your bookkeeping to capture "mixed" travel expenses. Some travel expenses may be business and personal, I refer to these as mixed expenses.When it comes to mixed expenses, I always advise to pay for them personally. From an audit standpoint, it is much better to pay business expenses personally than to pay personal expenses from your business. But, in order to capture the tax savings on the business side, it's critical to get the bookkeeping right.Step 1:Capture the Transaction in Your Personal BookkeepingYour personal bookkeeping is the starting point to capturing mixed expenses. When capturing mixed expenses in your personal bookkeeping, they need to be broken into 2 parts:Part 1:The Personal PortionThe personal portion is coded to the corresponding expense account, such as airfare, hotel, or transportation.Part 2:The Business PortionThe business portion is the most important piece because this is what will ultimately reduce your taxes. When you code the business portion of your mixed expenses, code it to a current asset account that is used only for this purpose. In my bookkeeping, I use the account name "Reimbursements Due."The key is making sure that this reimbursement account is an asset account. This will ensure that if you have not been reimbursed by your business for business expenses you paid for personally, there will be a balance in this asset account. If your business has reimbursed you in full, then the balance will be zero.Step 2:Capture the Tax Deduction in Your BusinessNow that you know how much your business owes you for the business portion of your travel, you need to have your business reimburse you. (The amount your business owes you is the balance in the asset account in your personal bookkeeping from Step 1).To complete this step, have your business make a payment to you for the amount of the reimbursement due. When your business makes this payment, code the payment in the business bookkeeping to the appropriate expense account.It is this step that captures the tax deduction in your business and actually reduces your taxes!Step 3:Cash Your CheckWhen you cash your reimbursement check from your business, be sure to code it to the asset account you use to track your reimbursements. This is the "Reimbursements Due" account I described in Step 1.How to Use Bookkeeping in Your Tax and Wealth StrategyBookkeeping plays a huge role in every successful tax and wealth strategy and it doesn't have to be complicated. There are easy tricks that help simplify the day-to-day of your bookkeeping. For example, with the steps I shared here, you have an easy way to track your mixed expenses and verify you've captured your legal business deductions - just remember your reimbursement asset account should always be zero!
About the Author:

When it comes to mixed expenses, I always advise to pay for them personally. From an audit standpoint, it is much better to pay business expenses personally than to pay personal expenses from your business.

http://www.ProVisionWealth.com
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3 Steps to Capturing Tax Savings with Your Bookkeeping