# Reviewing Deductible Expenses Before Tax Time

- Author: AutoBankConvert (https://www.autobankconvert.com)
- Published: 2025-04-29
- Updated: 2025-04-29
- Category: Tax season
- Canonical: https://www.autobankconvert.com/blog/reviewing-deductible-expenses-before-tax-time

> Reviewing deductible expenses before tax time: scan expense accounts for personal items, missing receipts and miscoding so the return starts from clean books.
Reviewing deductible expenses before tax time means reading each expense account in the client's books for three problems: personal spending posted as business, large charges with no receipt, and lines coded to the wrong account. The bookkeeper fixes what the records can settle, lists what they cannot, and leaves deductibility decisions to the tax preparer.

## What does reviewing deductible expenses before tax time actually check?

The review checks that every line in an expense account is a business payment, is supported by a document when it needs one, and sits in the account that describes it. It does not decide what is deductible. That is the preparer's call. The bookkeeper's job is to make sure the totals the preparer reads are honest.

Work account by account, not line by line across the whole ledger. An account has a pattern: office supplies are small and frequent, rent is one amount every month, software is a list of familiar names. A line that breaks the pattern stands out when you read one account at a time.

### One pass through the expense accounts

1. Run a profit and loss for the year with the prior year beside it.
2. Mark any account whose total moved by more than you can explain in a sentence.
3. Open the ledger detail for each marked account and sort by amount, largest first.
4. Read the top lines and the payee names you do not recognize.
5. For every unmarked account, scan the payee list once for anything that does not belong.
6. Write each finding in a review table with the action you took or the question you need answered.

### A review table for one client

The table below is a worked example for a fictional landscaping client. Every figure is made up.

| Expense account | Test applied | Finding | Action |
| --- | --- | --- | --- |
| Supplies | Payee scan | Big-box store charge of 1,940.00 in May, twice the usual | Asked client for receipt |
| Meals | Payee scan | Grocery store lines every week | Asked client; likely personal |
| Vehicle fuel | Year over year | Up 60% with no new truck | Checked: second truck added in June, noted |
| Software | Payee scan | Streaming subscription | Moved to owner draw after client confirmed |
| Repairs | Largest lines | 4,200.00 engine rebuild | Flagged for preparer: repair or asset |
| Insurance | Pattern | Twelve equal lines plus one extra | Extra line was a personal auto policy, moved |
| Uncategorized | Balance | 860.00 left | Three lines, listed as questions |

The table becomes part of the file you hand over. It tells the preparer what you checked and what you changed, which is often worth more than the corrections themselves.

## Personal charges hiding in deductible expense accounts

Personal charges end up in expense accounts when the owner pays for personal things from the business account or card and a rule codes them by payee. The fix is to move each confirmed personal line to owner draws, or to a shareholder account for a corporation, so the expense total reflects real business spending.

[IRS Publication 583](https://www.irs.gov/publications/p583) advises keeping the business account separate from personal checking. Clients who follow that advice produce few personal lines. Clients who do not will produce many, and the review should be slower for them.

### Where personal lines tend to sit

- **Meals and groceries**: supermarket charges coded as meals because of a broad rule.
- **Software and subscriptions**: streaming, music and personal cloud storage next to real business tools.
- **Travel**: family flights and hotels booked on the business card.
- **Vehicle**: a spouse's car payment or a second car's fuel.
- **Phone**: family plan lines beyond the owner's own.
- **Retail**: clothing and home goods from stores the business also buys supplies from.

### Confirming before you move a line

Do not move a line on suspicion alone. Ask the client with the date, the amount and the payee text, and offer the two choices: business, with a short reason, or personal. A list of ten such lines in one message gets a faster reply than ten separate emails. Once the client answers, write a rule for any payee that will recur, so next year's review has less to find.

## Missing receipts behind large deductible expenses

A bank or card statement shows that money left the account and who received it. It often does not show what was bought. For a large or unusual expense, a receipt or invoice fills that gap. The review should find the lines where the gap matters and ask for documents while the client can still get them.

Publication 583 lists canceled checks, account statements, credit card slips and invoices among the supporting documents a business can keep, and says those documents should show the amount paid and that it was for a business expense. A statement line that reads "AMZN MKTP US" proves the amount but not the purpose.

### Which lines to chase

Chasing every receipt is not practical for most practices. A threshold keeps the task finite. Agree a working amount with the preparer, for example every line over 500.00 in supplies, equipment and repairs, plus every line in travel and meals regardless of size. Then pull a list of lines above the threshold that have no attachment or memo in the books.

Records for some expense types have their own detail requirements. A home office depends on measurements and household bills the bank statement never shows; the guide to [home office expense records](/blog/home-office-expense-records) lists what to collect. Vehicle costs depend on a log of business miles, covered in the post on [keeping a mileage log for tax time](/blog/mileage-log-for-tax-time).

### When the receipt cannot be found

Sometimes the vendor is gone or the client threw the paper away. Write down what the client tells you about the purchase, attach any order email or photo they have, and list the line for the preparer with a note that no receipt exists. Never create a document after the fact. A clear note is far better than a gap the preparer discovers later.

## Miscoded lines that move deductible expense totals

Miscoding is a business payment posted to the wrong account. It does not change total expenses, but it changes which totals the preparer sees, and some accounts are treated differently on the return. The ones worth correcting first are those where the account itself carries meaning, such as meals, equipment, loan payments and payments to contractors.

### Miscodings that matter most

| Posted to | Should usually be | Why it matters |
| --- | --- | --- |
| Repairs | Equipment or another asset account | The preparer decides how to treat a purchase only if they can see it |
| Rent or expense | Loan principal | Principal is not an expense; only the interest is |
| Office supplies | Contract labor | Payments to people can trigger information returns |
| Meals | Gifts or entertainment | Different accounts can carry different treatment |
| Bank fees | Merchant processing fees | Totals the preparer may compare to processor reports |
| Any expense | Transfer between the client's accounts | A transfer is not spending at all |

These are common patterns, not rules for every client. The point is to move the line to the account that describes it and let the preparer apply the treatment.

### Finding miscodings quickly

Sort each account by payee rather than by date. A payee that appears in two accounts is a prompt: either the client buys two kinds of things from that vendor or one of the codings is wrong. A converter that applies the same client rules every month keeps this from growing. AutoBankConvert, for example, codes each line from rules you write plus the client's past coding, and sends uncertain lines to a review queue, so a December review is mostly about the lines someone already questioned.

## Which deductible expense questions belong to the preparer?

The preparer owns any question about whether an expense is deductible, how much of it is, and in which year. The bookkeeper owns whether the line is real, business, documented and in the right account. When a question crosses that line, write it down with the facts and stop. A note the preparer can act on is the right output.

Examples of questions to hand over rather than answer:

- Should a 4,200.00 engine rebuild be treated as a repair or added to an asset?
- Can a client deduct a portion of a phone bill used for both work and family?
- Does a membership fee count as a business expense for this client?
- Should a prepayment made in December for next year's service be split across years?

Write each one with the amount, the date, the account it sits in now and what you know. Do not code the line to a guess and leave it silent. A line sitting in a clearly named account such as "Ask preparer" is easier for everyone than a line hidden in the wrong place.

## Expense review traps with mixed-use and side-business clients

Mixed-use spending is one purchase that serves both the business and the owner's personal life. A side-business client is someone running a small business alongside a job or another business, often from one bank account. Both make the expense review harder, because the statement cannot show which part of a charge, or which business, it belongs to.

### Mixed-use charges

Phones, internet, vehicles and home costs are the usual mixed-use items. The bookkeeper should not pick a business percentage. Post the full charge to the account the client uses for it, keep a note that it is shared, and ask the client for whatever record supports a split, such as a mileage log or floor measurements. The preparer decides the percentage from that record.

### Side businesses and shared accounts

A side business run through a personal account mixes payroll deposits from a job, household bills and business lines on one statement. Review those books by starting from deposits: identify business income first, then look only at the expenses the client confirms are tied to that work. The guide to [bookkeeping as a side business](/blog/bookkeeping-as-a-side-business) covers setting these clients up so the next year is cleaner.

### When the review is not worth doing line by line

For a client with thousands of small, consistent lines, a full line read wastes time. Rely on payee scans, year-over-year changes and the threshold list instead, and say on your notes page which method you used. The preparer can then judge how much weight to give the totals.

If the bottleneck is getting a year of statements into the books before the review can start, [AutoBankConvert](/) converts batches of statements per client and exports them for QuickBooks or Xero, so the review starts on coded data rather than PDFs.