If you normally throw receipts away, start keeping them for the business. While it’s not mandatory to provide receipts for your taxes, you have a better chance of ‘winning’ against the IRS in an audit. Part of organizing your business taxes is the organization of receipts, including those for services, entertainment and goods.
Start Using Accounting Software
The accounting software doesn’t have to be something that is complicated. It needs to track sales and expenses. Some software integrates with your bank account to keep track of everything you deposit and all expenditures. At the end of the season, you’ll be able to print out reports for your accountant. Accounting software also helps to minimize mistakes on your part and the on the part of your accountant.
Create a Filing System for Receipts
Have a file folder for each month. Keep all of the months of one year in a Redwell so that everything is all together. If you keep the current and previous months’ folders on your desk, you simply place the receipts in the appropriate folder. As you move into the new month, put the previous month’s file folder in the Redwell and create a new folder for the new current month. At the end of the month, scan the receipts into a monthly file on your computer. Additionally, before you put that receipt away, make a note on it. If you took a client to dinner, you might write the client’s name and the reason for the dinner meeting.
Furthermore, at the end of the month, clip all like receipts together. If you have several receipts for office expenses, clip them together. Keep software receipts in another clip. Entertainment expenses should be clipped together. Add a sticky on top of each clipped pile with the total of all receipts for the month. Each clipped pile should have its own total. At the end of the year, when you have to itemize your expenses, you simply need to add up each monthly amount, which is written on a sticky, instead of adding up every single receipt for the entire year.
Keep a Business Journal
Enter your day’s events into a journal every day. You could hand-write it, or better yet, enter the notes on your Google or Outlook calendar. If you are audited, you will have information to substantiate your receipts. Adding information about meetings and who you met with should match the receipt notations. For example, if you took a prospective client to Red Lobster, you would write in the client name, the place you ate and the gist of the meeting. On the Red Lobster receipt, you would add the client name and the gist of the meeting to match what is in your daily planner.
Set Aside Money for Taxes
This is something not many people think of. Open a separate account just for business taxes. You could automatically transfer a set amount each week into the account or you could transfer the exact tax for each sale as the sale comes in. For those who don’t have the time for the extra step of making a transfer for each sale, check to see what your tax obligation was for the previous three years. Add them together and divide by three. This is your average taxes for the past three years. Now, divide that number by 52 to get the amount you should transfer on a weekly basis.
If you believe your business is going to do better than it has in the last year, pad the weekly amount a bit. When it comes time for taxes, you’ll have the amount in the extra account and won’t have to panic when your tax obligation is higher than you expected.
Additionally, if your tax obligation is lower than expected, you could leave the money in the account to get a head start on the next year, or you could move it to a business savings account as extra capital.
Do Not Co-Mingle Business and Personal Finances
Make sure you keep business and personal finances separate. When it comes to tax time, it’s much easier to do your taxes if you don’t have to sort through every transaction. Keep a separate bank account for business and personal; and take a paycheck every week, every two weeks or every month. You’ll also be less tempted to use business funds for personal use or vice versa. By keeping business and personal finances separate, you’ll make tax time much less stressful and easier on you and your accountant.
Contact France Law Firm
If you have tax questions or find yourself or your business being audited by the IRS, contact France Law Firm to set up a consultation to discuss your tax issues.