Different business expenditures are treated differently by the IRS. So it is important when designing your expense forms, you make it easy for your employees to report their expenses by function. The best way to do this is to create an easy classification system that breaks expenses down into type. Then when your employee reports a business expenditure, you aren’t scrambling at tax time to make sure that you are making the proper deductions, claiming the right credits, and have the necessary documents to prove all your claims.

Model The Expense Form After Your Tax Return Forms

When determining what should go on your expense forms, the best place to start is by looking at your tax returns. If you get stumped, you can literally copy the line items found on your tax return forms right into your company’s expense forms. This will not only ensure that you receive all the correct information from your employees, but will streamline the reporting process for your accounting departments.

Understand Your Industry’s Standards

Next, if you are a newer business, you should take a look at the common expenses found within your particular industry. In some industries you will spend resources on entertaining clients or travel expenses in others you will spend your resources on technology or research and development. Consider how these different expenses fit into your budget and impact your taxes. If you are a more established business, you can look at your past expenses and see how you actually spend your money compared to others in your industry and add whatever necessary classifications for potential future expenses. With this information, you can begin designing your expense forms.

Take Advantage Of Built-In Software Classifications

Most expense management software has functional expense reporting features that come with automatic classifications. Expense reporting software is designed by accounting experts, so these categories are great to help you develop your classification system. If you are a small business or only have a few expense reports every quarter, you may just want to use the default software classifications for your expense forms. Even if your software does not have all of the classifications you need, you can mix both the built-in classifications with a few of your own.

Developing your classification system can be a bit tricky if you aren’t sure about tax laws or what kinds of expenses your business may incur. If you follow these basic guidelines, you’ll be sure to make a great classification system for your expense forms.