We made it through tax season, with very few folks on extensions. The next deadline will be October 15th, and then we are home free, until we start all over again next February 2014.
Although we are four months into year 2013, it is never too late to think about next year’s taxes. I have put together some idea’s that will help you, and in turn help us to prepare your taxes next year. This is primarily for self-employed and small business owners, but I believe it would also help with personal taxes.
Step One: Keep Your Records Electronically
Every self-employed person or small business owner should keep their books using a reputable accounting software package such as QuickBooks or QuickBooks Pro.
And even if you are not self-employed, it’s a good idea to electronically keep track of your personal records and finances.
Keeping your records electronically is just the beginning; you still must have a system for retaining and organizing your underlying accounting records.
Step Two: Segregate your tax records by tax year
Whether you file your tax returns on a calendar or fiscal year, you report the results of your business operations for a twelve month period.
Consequently, your tax records should be separated by tax year.
Step Three: Group your records into 4 main categories: Receipts, Expenses, Fixed Assets, Inventory, Liabilities
Set up a folder for each category as follows:
- Include in the Receipts folder a copy of your reconciled bank statements for the year and any cash register slips or other information about your income
- Include in the Expenses folder copies of all vendor invoices for the year and copies of all cancelled checks and credit card transaction reports
- Include in the Fixed Assets folder copies of all invoices for the year relating to the purchase of furniture, fixtures, automobiles and equipment and copies of documentation for any sales of such assets you made during the year.
- Include in the Inventory folder copies of all invoices related to the purchase of inventory or raw materials during the year and records of all physical inventories taken at year end.
- Include in the Liabilities folder copies of all promissory notes, mortgages, equipment or premises lease agreements and payment schedules relating to same.
Step Four: Further group you’re Expenses
Your Expenses folder will contain the most documents and, therefore, needs to be organized further as follows:
- Print out a Chart of Accounts from your Accounting Software
- Create a folder for each expense account category included in your Chart of Accounts
- Group in separate sub-folders all vendor invoices and/or canceled checks by expense account category
Step Five: Prepare and Maintain a Fixed Asset Schedule
Prepare a list of all furniture, fixture, equipment, real property and vehicles owned by your business.
The list should include the following information:
- The date you purchased the asset;
- A description of the asset;
- The amount you paid for the asset;
- The date you began using the asset for business purposes;
- The date you sold, disposed of or ceased using the asset for business; and
- The amount you sold the asset for.
Keep everything related to your business and organize it on a daily basis in accordance with the above instructions and you will minimize your accounting and potential tax problems. For personal taxes organizing on a monthly basis is just fine. Let’s have a “great” 2013 tax year!