Business expenditure is considered differently by the IRS. While creating expense forms, you should make it easy for employees to report expenses by function. The ideal way to do this is to create a classification system that categorizes expenses into types. When an employee reports business expenditure, ensure that you are making proper deductions, claiming the right credits, and holding all the required documents to support the claims.
Create the expense form after tax return forms
While deciding what should go with expense forms, the first thing you need to do is to look at your tax returns. You can copy the line items found on your tax return forms right to the company’s expense forms. This will ensure that you receive the correct information from employees and simplify the reporting process for accounting departments.
Know your industry standards
Initially, you should know about the most common expenses found in your industry. Consider various expenses and understand how these expenses fit in your budget and impact your taxes. For established business, you can have a look at past expenses and see how you have spent money compared to others in your industry. Depending on the analysis, make required changes and classifications for future expenses.
Leverage the power of built-in software
Expense management software has reporting features that come with automatic classifications. Since the software was developed by the accounting experts, these categories would work well for your classification system. For small business, you can use the default software classifications for your expense forms. Also, if built-in classifications are not meeting your requirements, you can add a few of your own.
Defining a classification system is a bit tricky as you have to know tax laws and kind of business expenses. By following these basic guidelines, you can create a good classification system for expense forms.