How to Categorize Receipts for Small Business Taxes

We all have different skills. Organizing comes naturally to some people, while many others struggle.

Organization is important when it comes to accounting. That’s why small business owners who work with annual tax accountants put so much effort into correctly categorizing their receipts before their yearly appointment.

CSI Accounting & Payroll has helped thousands of small business owners with their taxes over the course of more than 50 years. In this article, we’ll detail our expertise in organizing your receipts on your own - unless you work with a monthly accountant and already get it all broken down for you!

Categorizing Your Own Receipts

Here are a few tips for categorizing your receipts on your own, as well as the categories to sort your receipts into.

5 Tips For Categorizing Receipts

1. Use broad categories. A common mistake that we see is when business owners categorize by the vendor; this doesn’t explain what you purchased.
2. Avoid detailing each receipt - just summarize them. If you have 200 charges under “office expense,” for example, you should just write the total expense. 
3. Hang onto copies of the receipts. This is for your own benefit, and you don’t need to give them to your accountant unless they request them for clarification. If you don’t want to hang onto paper receipts, there are ways to digitalize them.
4. Use a dedicated business bank account and a dedicated business credit card. These will help you see which transactions are business-related and which are personal.
5. Categorize the best that you can! Putting too much into a miscellaneous category is a red flag to the government. It’s not as important to place things in the right bucket as it is to just capture all expenses. Most are deductible at the same rate aside from meals (50 percent deductible) and entertainment (not deductible).

Categories for Business Receipts

Here are the categories that we commonly use for our clients when organizing their business receipts:

• Meals
• Entertainment
• Rent and utilities
• Vehicle expenses
• Travel expenses
• Equipment rental
• Advertising
• Outside contractors
• Postage
• Telephone expenses
• Repairs and maintenance
• Insurance
• Bank service charges
• Office expenses and supplies
• Education and business training
• Dues and subscriptions
• Taxes and licenses
• Professional service fees
• Interest expense
• Cost of goods sold
• Salaries (payroll)
• Payroll taxes
• Employee benefits

Getting Categorized Expenses From a Monthly Accountant 

When you have to do things yourself, categorizing your expenses can be extremely time-consuming. Do you know the value of your time?

When you work with a monthly accountant, you’ll receive financial statements that already break everything down for you! Each month, you’ll receive a Balance Sheet and an Income Statement (where small items are expensed right away) to help.

Not to mention, there are plenty of other benefits to receiving monthly financial statements and advice!

Work With a Monthly Accountant This Year

Whether you continue to organize your receipts on your own or want to look into having a monthly accountant take over, you should now have a better understanding of best practices for categorizing expenses. We hope you found our tips useful!

If you want to have a discussion about if CSI Accounting & Payroll is a good fit for your company, click the button below for a free consultation.

Not ready for a discussion yet but still want to learn more about monthly accounting? Click the button below to read about the cost of monthly accounting.