Retired IRS Agent

As a retired IRS agent and small-business owner I know the best way to save money on your income tax return is to take advantage of all deductions and business expenses. The best way to keep track of all business expenses during the year is to maintain a day planner/diary.

My day planner is 9 inches by 11 inches and it has one full page for each day and one-half page for weekends. I find that having a full page to write my appointments, business expenses, mileage, travel, entertainment, etc. allows me more than sufficient space.

As a business owner, I incur a number of daily business expenses and having a day planner allows me to keep track of all of my expenses. But the best thing about keeping a day planner is that at the end of the year I know I will have an accurate record of all my expenses.

Contrary to popular opinion, it does not take a lot of time to maintain a day planner. I spend 5-10 minutes a day keeping track of my mileage and other expenses. Here are some tips about keeping accurate expense records and a day planner:

• First and most important, I view keeping receipts and making entries in the day planner as a money-saving game rather than a task. I recommend you find a way to turn this task into a fun game that you can play every day. The trick to winning is to write entries every day and to stay on top of the game.

• Every evening I write down my business mileage and then I reset my vehicle trip meter to zero. This way I am ready to keep track of my business mileage for the next day.

• I keep a plastic bag in my car for bills and business receipts and every two weeks I copy the receipts that might fade and I staple the original receipts to the copy. Then I put the receipts into folders by category. I also make sure that all of the business expense receipts are listed in my day planner.

• I keep a business credit card and a business checking account as well as a personal credit card and personal checking account. And I never mix my business expenses with my personal expenses.

• I deposit business checks and cash only into my business checking account and personal checks into the personal account. If I need money from my business I write a check to myself and deposit it into my personal account. By keeping business and personal expenses separate my bank statement can be view as a partial profit and loss statement because all of the activity in the account relates to business income and expenses only.

• When I am traveling I list both the actual expenses and the per diem rates in my planner. Sometimes I’ll just go with the per diem rate so I don’t have to keep receipts.

• For business meals, I write the date, the name of the client, the business purpose, cost of the meal and the location where the meeting was held in the planner.

• I view expense receipts as evidence and currency and not as mere receipts because every receipt I collect represents money in my pocket.

In a nutshell I use my day planner to keep track of almost everything pertaining to my business and I recommend you do the same.

Think about it: How much money do you spend on business expenses during the 365 days in a year, and how many of those expenses are lost to you because you because you did not keep proper track of your business expenses?

I assure you that once you realize how much money you are saving in federal taxes by maintaining a day planner and by viewing this task as a game rather than a mundane task that you will wish you had played the game earlier. As time goes on you will find that maintaining the day planner can be a lot of fun and you will gladly get into the habit of maintaining proper entries and records.

Keep in mind; if you are audited by the IRS you might have to provide evidence for the majority of expenses listed on your tax return. So it’s important that you develop a system to keep track of your expenses and a system to maintain bills, invoices and receipts. Failure to do so might very well cost you thousands of dollars.

I strongly recommend that you play the day-planner game for 30 days and see how much money you save.

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