Yep, it’s tax season. The Statues of Liberty are swinging signs on the street corner and there are 13 new H&R Block offices between home and work, each one filling you with more dread than the last. It always seems to be tax season when suddenly the fence is repaired, closets organized, gutters cleaned....anything, ANYTHING but doing taxes.
It doesn’t have to be like that. With a few good habits and one hour a month, you can freely smile and wave to the Statues of Liberty, maybe even give a little laugh as you pass each H&R Block office.
Note: Following these steps does not require a huge shift in your processes – keep doing what you do to bill, track time, pay employees, inventory, invoice, and run your company. If you need a bigger shift in habits, drop us a line and we can help streamline your process.
Here are 10 simple steps to minimize wasted time and headaches next tax season.
First, invest in two inexpensive but absolutely crucial tools:
1. Accounting software: The basic version of QuickBooks Online is $13 a month. While QuickBooks is arguably the industry leader, there are plenty of other accounting solutions out there. Some other options include FreshBooks, LessAccounting, and Xero. Find one that works for you and your business, and implement it. Link your bank accounts for easy correlation, and spend some time personalizing your chart of accounts (categories) to reflect how you spend and receive money.
2. Receipts organizer: Something like this works well. It only needs to be big enough to hold a month’s worth of receipts. Label each section so it correlates with the chart of accounts in your accounting software. That will save lots of head-scratching time later.
Now that you have the tools that you need, Get into two simple daily habits.
3. Keep your receipts: If you have to ponder whether you should keep the receipt or not, keep it! If it’s not obvious what it is, or relates to a particular job/client/project, write on it. You know that moment when you have a pen in your hand because you’re about to sign the receipt? Use that same pen, and jot a note at the top of the “customer’s copy”. This will also spare you plenty of head-scratching down the line. If you don’t like printing online receipts, just create a file structure on your desktop similar to that of your receipts organizer (and by month) and save those receipts there.
4. Staple invoices: Do you send out invoices? Keep a copy for yourself and when the payment comes in, make a copy of the check and staple it to the invoice. Drop it on the month’s pile of paid invoices (this can be a section in the receipts organizer, a separate file organizer, or just a neat and accessible pile).
5. Separate personal and business: Always. There have been studies that confirm that missing this step causes the largest percentage of headaches during tax season. Color code your credit cards, cover your wallet in sticky note reminders, whatever it takes to make this a habit. If you slip up, go through the steps to right it: send yourself an invoice from the company for your movie tickets, write the company a check, and document it. Not only will this keep your records straight, it may also deter you from doing it in the future!
OK, so now you have a wallet full of receipts and never even have to think about which credit card to use. On to your two simple weekly tasks.
6. Utilize your receipts organizer: take that wallet-full of crumpled up (but neatly notated) receipts and categorize them in your receipts organizer. This should not be a time-consuming process, just drop them into the right section and close it up. I often jump the gun on this step, and do it every few days, so my wallet stays lighter.
7. Accept Transactions: It’s time to sign on to your trusty accounting software. Since you previously set the software up to pull all of your transactions in from your various bank accounts and credit cards, this step should just take a few minutes. While different software may handle this step differently, the outcome is the same. You want to scan through the expenses and payments from the week, assign them to accounts (categories—for expenses, the same ones that are labeled in your receipts organizer) and accept the transactions. This is a great opportunity to flag anything that looks suspicious, and to ensure those personal expenses didn’t sneak in there.
At the end of the month, your receipts will all be nicely catalogued, your online banking correlated, and your stress level dissipated. Put aside an hour to sit down with your receipts organizer, a pile of envelopes, a pen, and your computer.
8. P&L: Print the month’s P&L from your accounting software. Look at it.
9. Envelopes: One section at a time, pull your receipts out from their organizer. Tally them up and compare them to that line on the P&L. Note any glaring discrepancies- if you know why, explain it on a piece of paper and add it to the receipts. If you don’t, make a note to try to find out. Once tallied, shove all the receipts from that section into an envelope that is marked with the month and year, account (category) name, and total dollar amount. Do that for each section of your organizer, and also for that pile of paid and stapled invoices.
10. Put it away: Put all of those totaled envelopes, the P&L, the month’s bank statements, and any other relevant financial documents together into a manila envelope marked with the month and year. Stick it in a drawer large enough for a year’s worth of manila envelopes. Hopefully you never have to open that envelope again. But if you do, at least you’ll know where to find what you need.