Business Recordkeeping for Tax Deductions

Solid business recordkeeping will help you keep track of tax-deductible expenses, prepare tax returns, and support claimed deductions. To understand why having good recordkeeping practice is important, read about it here.

In this post, we will cover the records you need to keep for tax deductions, how long you should keep them, and how to make sure you don’t lose them.

What do you need for tax records?

In order to claim any deductions, you need to provide a valid proof of purchase and prove that the expenses were for business purposes. This would typically require retention of various original source documents and include records of the following information:

• Expense date
• Merchant / Supplier name
• Product or service purchased (with details or specifications)
• Amount paid (with breakdown of taxes included)
• Payment method
• Business purpose for the expense

While most of the information proves the existence of the purported expense, details on business purpose serves to justify that the expenditure is for legitimate business uses. It differentiates a tax-deductible business expense from a non-deductible expense.

Examples of source documents

For business expenses, source documents that are commonly required include: 

• Invoices or receipts received as proof of all purchases and expenses
• Payment vouchers for payments made
• Relevant contracts/agreements signed with service providers or landlords (especially where invoices and receipts are absent)
• Evidence of payments made, such as bank statements

Some transactions may come with multiple documents detailing different pieces of information. While in many cases an invoice or receipt would suffice, sometimes transactions could require additional source documents to justify them as business expenses. This is particularly so if each document contains relevant information on the expense that is not conveyed by other documents.

For instance, we could have a whole set of documents for a transaction where:

• the agreement tells us the terms of a project undertaken;
• the invoice tells us the breakdown of items and costs that were billed;
• the delivery order details specifications of items sent to a specific location;
• the receipt shows us what amount was actually paid in which currency.

As a word of advice, it is never a bad idea to collect and retain more documents, especially if they each tell a different part of the story.

Examples of records required for different expenses

Other than generic documentation requirements, some expense types may also require other specific information to reasonably justify them as business expenses.

Transportation costs

Transport expenses may refer to both overseas or domestic transport by way of public transport or car rentals. If you have any bus/train/taxi ticket, you should keep a copy of it and provide details on any required information that is not captured in the ticket.

Some of the additional details to be recorded for transport expenses are:

• Date(s) of transport and duration of travel (if transport is not local)
• Travel route (origin to destination)
• Mode of transport
• Travel class, if applicable (e.g. business class flight)

Accommodation costs

When employees travel for business purposes and book accommodations for overnight stays, they would need to keep a copy of the invoice and booking confirmation. In addition to the generic requirements, records should include:

• Dates and duration of stay
• City and country of stay
• Room type (twin hotel room, 3 room apartment, etc.)
• Breakdown of room charges (including room service or other charges)

Meal expenses

For meal expenses, requirements might follow the generic rules if the meal involves only the claiming employee. Just fill up any undocumented information and retain the original receipt, regardless of where it is from, be it a restaurant or a supermarket. 

If the meal involves other attendees or is part of an event with a larger group of people, further information would have to be furnished, including:

• Names and designations of attendees
• Names of organisations the attendees represent
• Business purpose of the expense (Client entertainment, department team-building etc)

Actual mileage expenses

In some jurisdictions, authorities may provide prescribed rates for mileage reimbursements. Depending on whether the company chooses to follow the prescribed rates, its requirements for employee documentation may also differ. Most generally, documentation that would usually be required to support mileage expenses would include:

• Mileage claimed
• Vehicle make and licence plate
• Date/time of trip
• Travel route (origin to destination)
• Name and designation of claimant
• Names and designations of any passengers
• Purpose of trip and details of places, companies or people visited, if any

How long should I retain the records for taxes?

Document requirements usually necessitate the retention of transactional records for a period of 5 to 7 years, depending on the nature of transaction and the applicable governing body. In Singapore, the governmental tax administrator IRAS mandates that companies keep all records such as forms, business expense receipts, payslips and CPF statements for at least 5 years.

Do I have to keep actual paper records?

5 to 7 years worth of business records is a lot of paper and storage space. The good news is, nothing says you have to keep the receipt in its original paper form. You can file them away or go paperless and store everything electronically.

Automate your recordkeeping with Navisteps

Printed receipts are fragile things. Even a few weeks nestled at the bottom of a wallet is enough to render most illegible.

With an integrated expense and travel management solution like Navisteps, you no longer have to keep up with all the time-consuming paperwork or worry about inadequate proof of expenses.

With Navisteps, business expenses supporting documents and records are dematerialized and stored securely on the cloud for easy retrieval during tax season.

It is plain to see that a digital system does the job more efficiently and delivers far better outcomes. If you have yet to discover the marvels of automation in expense management, talk to us or sign up for a free trial to check out the features.