How Virtual Bookkeeping Can Protect Your Clients

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In the previous post we discussed some of the benefits to YOU for taking your bookkeeping business virtual. But there are some significant benefits to your clients for letting you take their bookkeeping online as well.

One of the big ones is, it can actually save them THOUSANDS of dollars in taxes, interest and penalties. No kidding.

To illustrate what I mean, let's take a look at a Tax Court case that took place earlier this year. (K. J. Fessey v. Commissioner of Internal Revenue)

If this self-employed loan consultant had used a virtual bookkeeper to not only keep his books, but a paperless solution to handle all the paperwork, he would have saved himself a HUGE amount of time and tax dollars.

This sole proprietor ended up owing over $11,000 in taxes and over $4,700 in interest and penalties, with the vast majority of that being due to business deductions that the Court determined he could not claim.

Why were so many of his business expenses disallowed by the Court?

One word: Substantiation.

It wasn't because these weren't truly viable business expenses, but rather, he could not prove that the expenses were directly related to his business.

Didn't he keep records?

Yes, but much of his recordkeeping was done using his American Express credit card statements alone. With the statements he had documentation of who he paid, how much and on what date, but nothing more. Because he did not have his receipts, there were no additional details to prove WHAT the money had been spent on specifically.

The Court denied many of his business expenses because a credit card statement alone is not evidence of the business purpose of an expense. Receipts contain details that demonstrate the nature of the purchase; just noting the vendor is not proof enough that the purchase was for business purposes.  (i.e., just because you buy something at Staples doesn't mean it was for your business)

Receipts provide the best substantiation of business expenses and need to be stored with the credit card statements or financial records files, for tax purposes.

So how does a Virtual Bookkeeper come to the rescue?

Having complete bookkeeping records would have given him better documentation. Additionally, by using a paperless solution, electronic copies of his receipts would have been saved and tied to each transaction. He would have had air-tight proof of his business deductions. None of his deductible expenses would have been lost.

Since most small business owners don't like to be bogged down with keeping track of all the receipts, using a paperless solution is a way to get rid of the clutter and conveniently provide the information you need as a bookkeeper to properly keep the books.

By simply scanning receipts as they come in, or gathering those that are already in electronic form, and sending them to an electronic dropbox, your client can forget about the bookkeeping AND feel secure that nothing will be lost. Should the IRS come calling, they could easily breeze through a tax audit unscathed.

And of course, we all know how difficult it can be do to “after the fact” bookkeeping from bank and credit card statements alone. So going paperless makes your job much easier, too.

If going virtual and converting business expenses to a paperless system sounds like a good fit for your business, consider which of your clients are vulnerable and would benefit most by switching to virtual bookkeeping and paperless expense tracking.

To get started, all that's needed is a scanner.

I also highly recommend considering the use of document management software, such as SmartVault. I use that program myself, and it is a great all-in-one solution for your virtual services that also works seemlessly with QuickBooks. It's easy and convenient to use both for you and your clients. And convenience is a BIG motivation for getting your clients to go paperless.

If the concept of using the Internet and electronic solutions in your freelance bookkeeping business is new to you, you may want to catch the replay of the free training webinar I did last week, “Taking Your Bookkeeping Services Online” (See below for details)

No matter how you decide to do it, one of the BIG reasons your clients will want to work with you, is because you can protect them from a very painful tax audit by making sure their business expenses are adequately substantiated (with receipts) and accessible.

That kind of protection is worth a lot and will help your clients, or potential clients, see the true value of what you can do for them.


Free Resources

Taking Your Bookkeeping Services Online” – This free training webinar replay shows you why bookkeeping services through the Internet is the wave of the future, and why getting onboard now will make your life easier and your business more profitable.

Here's what a fellow bookkeeper had to say about this webinar:

I got so much helpful information last week on the webinar.  Just started using SmartVault and LOVE it!  Told my employer he has until the end of the year to get over keeping paperwork too.
– Karen Howell

The webinar replay is free, but it will only be available through October 31st.

=> Get Access to the Webinar Now


SmartVault document management solution. This is an all-in-one paperless solution that also integrates with QuickBooks. In fact, SmartVault started as a QuickBooks document management product, and now is a total online solution for handling paperwork on a virtual basis. You can start using it for your own business (recommended) as well as for your clients for free (no obligation to upgrade). I use SmartVault in my own business, and believe this is the best choice for Virtual Bookkeepers.



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Freelance bookkeeper, trainer and consultant who works with internet savvy business owners and bookkeeping professionals to maximize cash flow and support true win-win business success.

5 Responses to “How Virtual Bookkeeping Can Protect Your Clients”

  • beverly anne mahinay on November 18, 2010

    It is nice to know that bookkeeping helps a lot a company and especially clients. With the help of bookkeeping, business owners will be secured on whoever their clients are because all records are safely kept by paperless solution. Bookkeeping provides all the information needed by the business owners through using paperless solution to financial account records and documentation is protected.

  • James Carlin on November 28, 2010

    I love the idea of using online storage for paperwork and the fact that it can work seamlessly with Quickbooks. I think it also makes it easier to find a receipt when needed. As to the story about the business owner not keeping receipts, I have also run across small business owners who think it is okay to just write checks or use credit cards, but don’t give the receipts to their bookkeeper for substantiation.

  • Rosalee Decker on June 2, 2011

    Don’t forget to have backup copies of your expenses, etc for your records incase websites go down. Can save a lot of heartache.

    • Gabrielle on June 2, 2011

      YES! Excellent advice, Rosalee! In fact, I suspect that with more and more of ALL business services being dependent on “cloud applications” we need backup systems, since outages are becoming more and more common. Thanks for the good reminder.

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