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On the Job A Pain-Free Tax Season: Organization Tips for
Small Businesses If you’re a small business owner
you’ve likely been spending some time getting your tax records together to
hand-deliver to your accountant. Or,
you’re firing up your pencil sharpener and setting aside 8-10 days to do your
taxes yourself. More...
If you’re the type who scrambles to find
receipts, statements and other financial documents, you probably think tax
season is a huge headache. It doesn’t have to be.
You’ve probably heard that any successful
business needs to create systems. Systems
allow you to thrive, because they will ensure that your business keeps working
even when you aren’t. You can
teach your systems to others (employees, partners, downlines) and exponentially
increase your revenues, while maintaining great customer service. Same goes for recordkeeping.
Take some up-front time to plan a system and put it into place.
Then, all that remains is to follow the system, consistently and
diligently. Do You Use an Accountant to Prepare Your
Taxes? If you do, get your money’s worth!
When you deliver this year’s records, ask:
"What’s the best recordkeeping system you’ve ever seen?
Who’s your favorite client at tax time and why?
How do they do it?" Every
accountant I’ve talked to has a client that’s come up with a superb way to
track tax information. So why
re-invent the wheel? Learn their
system, and copy it. A Paper System That WorksIf you can’t beat ‘em, join ‘em.
Rather than develop your own way to track revenues and deductions, use
the IRS’s system. Create a
business activity tracking sheet right from the schedule you use to file your
taxes. Start by grabbing a copy of your business
entity’s tax form at www.irs.gov.
For example, if you’re a sole proprietor, you would use a Schedule C in
conjunction with a Form 1040. To create your tracking sheet, set up three
columns. In the first column, list
every line item from your tax schedule. If
you use Schedule C, you’d start by listing your revenues:
Gross Receipts," "Returns
and Allowances," and so on. You’d
continue with expenses: "Advertising,"
"Car and Truck," "Commissions and Fees"… until you reach
the end of the IRS form. Label the second column "MTD" for
"Month-To-Date" and label the third column "YTD" for “Year
To Date." Make 12 copies of
your new tracking sheet. Take twelve manila folders and label them
with each month of your fiscal year. Make
sure to include the fiscal year on the label, too.
Put one of your tracking sheets in each folder. Now for the system.
Each month, put all your receipts, statements and reports in the
appropriate folder. On the last day
of the month, total your business activity in the MTD column using the
appropriate line items. To
calculate the YTD column, simply add the current month’s MTD to the previous
month’s YTD. (Your YTD is a running total for the year.)
When you reach the final month of your fiscal year, the YTD column will
represent your final tax figures. Prefer Software?Just because you use a software program such
as Quicken, Peachtree or Quickbooks doesn’t mean your financial information is
readily accessible at tax time. You
still need to make sure your paper records back up your digital entries. Take twelve manila folders and label them
for each month of your fiscal year. Again,
don’t forget to add the year. Put all your receipts, statements and other
supporting documents in corresponding monthly folders.
On the last day of each month, run income statement and balance sheet
reports from your software for the month you’re closing out.
Put these reports in the manila folders, too. When the year is over, run final reports
from your accounting software covering the entire fiscal year.
Bundle your manila folders together and put your year-end reports on top.
Deliver to your accountant; he or she has
everything they need to put together your tax return. Another variation on this system:
Create folders for each line item on your tax return.
Again using Schedule C as an example, you would create a folder for
"Advertising," another for "Car and Truck Expenses," and so
on. Put supporting documents in the
appropriate folders. Your
accountant will likely work off your software reports and use your supporting
documents to double-check your figures or seek additional deduction
opportunities. Final Tips for SuccessA great system isn’t worth beans unless
you actually use it. Schedule your
monthly recordkeeping tasks in your PIM or daily planner.
Make it a habit to regularly file business documents and/or make entries
in your accounting software. A good
rule of thumb is to schedule at least one hour a week for recordkeeping. If you think your time is better spent
elsewhere, hire someone to do your recordkeeping for you. Either way, when next tax season rolls
around, you won’t have to pull out the extra-strength headache tablets.
You’ll just pull out your files instead! * * *
Copyright © 2006 by Leo Quinn, author of How to Own Your Own Paycheck Again. All rights reserved. Want more money-saving tips? Get a FREE Subscription to our monthly newsletter!
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