It’s that time of year again, time to dig out the shoe box full of receipts and hope that you have everything in there… time to dust off the calculator and pray that the IRS doesn’t audit you… time to just sit and stare at your computer screen and hope the deductions jump on there automatically….
Yea, it’s Tax Time.
(who else is already sick of the H&R Block commercials??)
It’s bad enough filing taxes when you work for someone else but filing when you own your own business can be a nightmare… IF you aren’t prepared.
I have a few secrets, learned from an accountant grandmother, to share that have made my life so so much easier and made this time of the year better all around.
First- grab 12 large manilla envelopes, write each calendar month on them and store them in a place easily found.
Second— add receipts to the correct envelope immediately, do not let them pile up, you will loose them and you will forget about them until January of the next year. Actually, add EVERYTHING for that month to the envelope. Sales slips, out going funds receipts, everything, personal use products, products you give as gifts, everything.
I cannot stress EVERYTHING enough. Just file it. You may or may not need it but you may not know that until it comes time to organize it for real. Don’t toss something and then wish you had it when you’re handing it over to the accountant, somethings are very difficult to recreate and my hard and fast rule is if I don’t have proof I didn’t spend it on my business, because generally, that’s the IRS rule…
And you can write on the envelope.
Also of note- WRITE ON THE RECEIPT! Do it, immediately, do not let it sit around. Write who, what and why on every single receipt. You will, I promise you, forget what you were doing and why you were there and if you cannot prove to yourself why this is a viable business deduction you certainly can’t prove it to the IRS. Just write on there.
Now leave those envelopes alone except to add the appropriate pieces of information to each one.
Mileage log-– this ends up being my biggest deduction! Keep it in your car. Simple notebook will work with a pen attached via ribbon or string.
I am a little more detailed than is probably necessary but I have a spreadsheet print out with date, purpose of trip, starting and ending mileage and then total miles traveled for EVERY BUSINESS MILE I TRAVEL. It starts out as a pain in the butt because it takes a few extra minutes before you start and when you end your trip but after a while it becomes routine and when you see the miles adding up and you know that every single mile is a deduction you will get over the loss of a few extra minutes of your time.
* Once January of the next year rolls around its time to pull out those envelopes in which you’ve so faithfully put every scrap of paper you think you may or may not need in over the last year.
Again, I may over do this, but I take one month at at time, hole punch and tape the small receipts to plain paper and put in a 3-ring binder separated by month with dividers. Typically I use a worksheet of some sort for each month to write out total sales, total inventory, phone bill, home office payment, internet bill, total taxes paid, shipping, monthly mileage, etc so that at a fast glance anyone can see what went out and what came in that month.
In the front of this binder I have miscellaneous things like my mileage log, my employers w-2, donation slips, student loan interest payments, etc.
and I hand it all over to my accountant, normally during the first week of February, who loves the organization, and she does her thing, about 2 days later (I have such a fast turn around because I am so well organized) I come back, sign and mail the appropriate paperwork and wait patiently for my returns.
I hold on to each binder I create, organized by year, in the event that anything is questioned and if I change tax accountants I normally take him/her the last several years of books for record purposes.
This is just my method, and yes, I am a little anal retentive and may over do it in some areas, but it works and works well for me.
If I file each receipt in the appropriate envelope through out the year, I normally have everything organized and ready to go in a binder after only a few hours of work on Saturday, plus, think of your poor accountant who will have to dig through that shoe box to make heads or tails of your business life… that’s just not fair.
Oh– and I’ve gotten many reduced prices on my tax preparation work because I am so well organized, it is truly appreciated when a person walks in so well prepared. It’s worth the few hours of extra work over the course of an entire year to me to have a little off my bill and to help out a person who works so very very hard for me.
What methods do you use? What works and doesn’t work for you? I’d love to know because I’m always up for working smarter and not harder!
Here are a few articles on small business deductions but I always recommend you take professional advice rather than just believing what you see on the internet, don’t get yourself into trouble unnecessarily.
This IS my business, and I run it like a business and I turn in tax paperwork like a business. I believe that being prepared has saved me from a lot of headache through out the years.
Small business deductions are very viable and anyone who wishes to start his or her own business can take advantage of them. If you’d like to learn more about how to start your own business I’d love to talk with you and show you so many ways to make and to save money.