Good recordkeeping can maximize business deductions
 

Small business owners know the importance of watching every dollar spent. Attention to accounting is doubly important when it comes to taxes, where careful tracking of expenses can cut a business's tax bill.

This organization could pay off for you at tax-filing time, especially if you deduct entertainment and transportation expenses. Keeping timely and accurate records will not only make your tax return easier to prepare, it also will help protect you from the Internal Revenue Service if your return is ever examined.

You don't have to invest in an elaborate recordkeeping system. Keeping the expense verification you'll need for tax time can be as simple as entering the data in a diary or account book. The key here is to faithfully enter the expenses.

It's also a good idea to keep evidence -- receipts, cancelled checks, bills -- that, along with your records, supports your expenses. Documentation is not necessary in every case; IRS examiners don't require receipts for expenses less than $75 (except for lodging costs). But it doesn't hurt to get in the habit of collecting the information, whatever the cost. And be sure to jot on the receipt or in your diary the amount, date, time, place and description and the business purpose.

The business purpose is especially crucial for deducting entertainment and meal expenses. For entertaining expenses to be deductible, tax laws require the participants to discuss business -- and for longer than just five minutes during a two-hour event -- directly before or after these out-of-the-office business meetings. Even then, only half of the entertainment and meal costs are deductible, so complete evidence of expenses is critical to getting the most out of your deduction.

If you use your car for business, you'll probably want a separate auto diary to record mileage, tolls, parking fees and general upkeep costs. You may not need all these figures, depending on which method you choose when deducting auto expenses, but it doesn't hurt to have them. It's easier to discard unnecessary information in April than to reconstruct all those business miles.