As a small business owner, every single expense matters when it comes time to take a deductible advertising expense for small businesses. You must keep proper record keeping to maximize your deductions and maintain a favorable net earnings situation. However, if your record keeping could improve, your advertising deduction can suffer, resulting in an overall financial loss. This article will examine the importance of accurate record keeping and how it can impact your deductible advertising expense for small businesses.
The Impact of Inadequate Record-Keeping on Tax Deductions
Inadequate record keeping can materially affect your ability to recover deductible advertising expenses for your small business. Without a solid record-keeping process, you risk multiple impacts:
Lost Opportunity for Deductions
With adequate record keeping, you may retain the opportunity to recover deductions. Without solid records to substantiate your advertising expenses when tax time comes, your small business could lose legitimate deductible advertising expenses, creating more taxable income and causing higher tax liability.
Increased Auditing Risk
The IRS takes a close look at tax returns with inadequate documentation. Inadequate record keeping may trigger an audit, and in the absence of records to support your deductible advertising expenses, your small business risks tax changes, tax penalties, and tax interest.
Time and Resource Drain
Trying to organize or recreate records the week before your tax deadline can drain your time and tax resources. This distraction can lead to lost productivity and raise the likelihood of filing a tax return with errors that would have been avoided had you not been preoccupied with your record-keeping efforts.
Cash Flow
You must have deducted in prior years to maintain your cash flow for this year. Paying taxes on missed deductible advertising expenses is less working capital to support your business operation, growth, and advertising for next year.
Legal Risks and Compliance
Inadequate record-keeping exposes your business to the legal risk of not complying with advertising rules and regulations, resulting in potential legal challenges or fines.
Action Plan for Improving Your Record-Keeping Today
Action Plan for Improving Your Record-Keeping Today
If you want your small business to take advantage of the deductible advertising expenses available, take the following action:
Adopt Digital Accounting Tools
Use digital accounting tools that automatically track and categorize your expenses. Choose software that will integrate with your bank and credit card accounts.
Set and Stick to Regular Updates
Set aside time every week or month to update your records. Logging advertising expenses and organizing will help you avoid the last-minute panic at tax time.
Save Detailed Receipts
Save either electronic or physical copies of advertising expense receipts – the receipts must be specific to advertising expense. Whenever possible, record the date, amount of expense, and a brief description of the nature of the advertisement in the receipt. It is usually reliable and easy to organize and store digital records in cloud storage.
Educate Employees
If you have employees, make sure you educate them on the reason for keeping proper records of advertising expenses and how to do so.
Consult with a Professional
Be proactive about seeking the opinion of a tax professional or accountant who is aware of advertising expense deductions. This person can offer your personal attention about your situation and help you maximize your advertising deductions while complying with tax law.
Final Remarks
In conclusion, small business owners must practice good record-keeping to substantiate their deductible advertising expenses on their tax returns. By enhancing the way, you keep records, you can help protect the financial viability of your business, stay in compliance with your taxes, and ensure future growth. Start now by utilizing digital tools, keeping your records up to date, preserving receipts, teaching your staff, and consulting your professionals. Every dollar you save through fully utilizing your deductions can be considered a dollar you can reinvest in your business to help propel its success.
Dariel Campbell is currently an English instructor at a university. She has experience in teaching and assessing English tests including TOEFL, IELTS, BULATS, FCE, CAE, and PTEG. With over a decade of teaching expertise, Dariel Campbell utilizes his knowledge to develop English lessons for her audience on English Overview.
