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Written By: Megan Sullivan | Intuit Quickbooks
With tax season looming, many self-employed people and small business owners are starting to sweat their tax deductions. One of the greatest areas of concern year after year is business expenses and receipt capture. In a recent study conducted by the Receipts team at QuickBooks Online, 500 self-employed individuals and small business owners were surveyed regarding their current expense tracking and receipt capture habits.Questions ranged in topic from what types of deductions self-employed individuals take to how expense receipts are stored and organized to what types of challenges these workers face while trying to keep track of it all.Of the 500 respondents, 60 percent identified as self-employed, while the other 40 percent indicated they were small business owners. Sixty-five percent of these individuals indicated they have between 1 and 5 employees, while almost 20 percent (19.2) have no employees. A majority of all respondents were single (36.6%) or married (38%) with no children (50.4%) and intend to make a real estate purchase in the next 12 months (50%).Leaving Money on the Table
Two things became apparent as soon as the data was initially analyzed: self-employed individuals are uncertain what exactly they can deduct and this uncertainty leads to not deducting everything they can. This directly translates to leaving money on the table.According to the study, more than 50 percent (55.4) of respondents do not deduct all of the expenses they can from their taxes every year. In fact, only 15 percent (15.2) of those that responded stated they deduct 100 percent of what they can annually.
When examining why self-employed individuals don’t take all of their deductions, in addition to being uncertain of what can be deducted, people can’t remember all their expenses (21.8%) and don’t deduct everything because they lose their receipts (17.4%).While it’s unfortunate that these obstacles keep self-employed individuals from taking all the deductions they could, it’s encouraging that these challenges are easily addressed. QuickBooks Receipt Scanner is designed to keep receipts all in one place and works fast, so it doesn’t disrupt a busy business owner’s day.
Organization is Key
Of course, one of the key elements of any tax deduction is keeping and organizing the necessary receipts. Nearly 8 out of 10 respondents (79.6) stated that they could be better or a lot better at organizing their receipt. Only 20 percent (20.4) felt that they had no room for improvement where organization was concerned.This margin for improvement leads to a high margin of error as well. Seven out of 10 self-employed individuals (69.8) stated that they lose a receipt at least once per month; while the other 30 percent (30.2) said they never lose receipts.Plus, many self-employed individuals don’t keep their receipts for the express purpose of using them as a tax deduction. When asked to rank the most important reasons that they hold on to receipts, respondents stated it was in case they wanted to make a return. Tied for the second most important reason were the following: to keep product warranties; to keep track of how much is spent on business and expenses; and finally, to deduct expenses at tax time.Physical vs. Digital Tracking
When asked to describe how they organize their receipts, only 16.8 percent of respondents stated that they keep track of their receipts digitally. That means that more than 80 percent of self-employed individuals are still relying on shoeboxes, coffee cans, file folders and their wallets as a filing system.
However, 20 percent (20.5) of respondents expressed a wish for a better way to keep track of their receipts, while another 8 percent (8.2) said that they spend too much time keeping track of and organizing their receipts.Similar to understanding what receipts are necessary to keep for tax deductions, it would appear that a lack of knowledge regarding other expense tracking and receipt organization methods is what is preventing self-employed individuals from using a more secure tool.