Today’s Biz Ladies post comes to us from Mandy Miller, an independent bookkeeper, financial manager, business manager and operations consultant to a number of small businesses and individuals through her firm Mandy Miller Business Solutions. She has been serving the New York City small businesses realm for 11 years, and today she shares some valuable tips about how to master your taxes. From key organization strategies to learning what all the numbers really mean, she makes doing your taxes fun (or at least manageable)! Thanks, Mandy, for this timely and helpful post! — Stephanie
CLICK HERE for the full post after the jump!
How To Make Sense of That Shoebox Full of Receipts
Get Organized, Keep It Simple
We all tell ourselves that we will get our taxes done early this year. Sure, it’ll be easy to be ready by February, right? Then, in the blink of an eye, it’s April . . . and you still haven’t gone through that shoebox full of receipts, let alone the countless other expenses you’ve paid that you know didn’t even make it to the shoebox. Don’t panic! Just tell yourself it’s time to get organized. I think the best way to tackle what feels like an overwhelming chore is to break it down into smaller, more manageable tasks. So let’s start breaking it all down!
First, think through the types of expenses you have and write them down in a notebook. For most of us, these are
- office supplies
- meals & entertainment
- membership dues
- merchants’ fees (if you process credit card payments or use PayPal)
- business-related gifts
- business use of your home — the percentage of home rent/mortgage and utilities you use for the business
- cost of goods sold — the materials you buy to produce your goods, including packaging materials
Or go right to the source: the IRS.
Okay, so now you know what things you spend your money on. Next, let’s match up your receipts to these categories. It’s time to open the shoebox! Start organizing the receipts by category. I would suggest getting some blank envelopes and labeling them by category, and then just putting the relevant receipts inside.
Alright, that wasn’t so bad, right? But as you were doing that, you probably realized that there are some things that you definitely paid out last year that weren’t in your shoebox. Not to worry; in fact, this is part of the plan. Identifying exactly what you have is the best way to know exactly what you’re missing.
What about checks you’ve written? Maybe you wrote your accountant a check, or maybe you paid for that new sewing machine by check. If your checkbook includes carbon copies (which I strongly recommend), get it out and have a look-see, or even go to your bank statements. With online banking, there is so much information at your fingertips, and most banks keep 12 months of bank statements in your online account, if not more. As you flip through your checkbook, get out some Post-it notes. Write down the check date, check number, payee and check amount. Then add that Post-it to the appropriate expense envelope.
Other receipts you think are missing? Go back through your bank statements and look for other transactions that you may have missed, such as using your debit card to pay for taxis or meals. Still can’t find it? You may want to contact the vendor to see if they will reissue a sales receipt. And if all else fails, there are some exceptions for receipt requirements (see IRS Publication 463). But be sure to consult with a tax professional if you plan to take any deductions that you don’t have a receipt for.
Add It Up
Great, so now we should have our envelopes all ready to go. For the next step, I suggest you use Microsoft Excel or iWork Numbers — you really just need to know the basics. If you don’t know how to use these programs, keep using your notebook. Now we want to tally up each category. Total your office supplies, total your travel, total your meals, and so on. You’ll start by putting the category names at the top of the page, one category per column. Then write or type in the expense amounts one by one, row by row. Once you’ve filled the column with every expense in your envelope, total the column. Not using Excel or Numbers and want to take a shortcut? Just add it all up by calculator and write in the total amount under each category.
Voila, you have all of your expenses! Categorized, totaled and ready for your accountant.
So you’ve tackled those pesky expenses, and now it’s time to tally your income. I’m guessing that some of the receipts in your shoebox are deposit receipts. So yes, put those in their own envelope marked “deposits,” and add them up, following the same steps and method you used with your expenses. Or if you take in most of your income through PayPal, you can download monthly activity statements directly to Excel or Numbers.
Do you have more than one type of income? For example, let’s say you make and sell decorative pillows and that all of your business income in 2010 was from the sales of those pillows, except that one of your customers asked you to come to their house to do a color consult and agreed to pay you a fee. Just as with expenses, you can have more than one income category. If so, be sure to split up income receipts among categories as appropriate.
Your panic has now subsided. You’ll make the tax deadline after all.
So how can you really be more prepared for next year? Here are a few suggestions to help you make those good intentions a reality:
- Use your debit card for all business-related expenses.
The more you use your debit card for all business expenses, the easier it is to track your spending — and to locate it at the end of the year. It will all be neatly tracked through your bank statements and online accounts.
- Use Mint.com.
Sign up for Mint.com; it’s free. It’s an online tool that allows you to track and categorize your income and expenses in real time. Once you enroll all of your bank accounts and credit card accounts through Mint, Mint begins to automatically track expenses for you, and then you can categorize the expenses. You can set up your own categories. I suggest you set up a category called “Business Expenses” with subcategories based on those you used this year. Mint is a software program, and like all software programs, it will undoubtedly miscategorize your expenses if you don’t stay on top of it. But it’s easy. Just log in once a month to review your expenses and change the categories as needed. There’s even an iPhone app, so you can do what I do and review it while you’re waiting at the doctor’s office or in a cab. I highly recommend Mint for anyone who hasn’t set up a separate business checking account.
- Learn Microsoft Excel or iWork Numbers.
At least the basics. Because, hey, your business isn’t going to get smaller. It’s growing. So learn about spreadsheets now. Tracking income and expenses through Excel or Numbers is simple and helps you stay organized. In fact, the busier you get, the more you should stay on top of it. Every time you receive a payment, you can record it in a spreadsheet. Likewise, you can enter your expenses in a spreadsheet on a monthly basis. Yes, it’s a little extra work, but you’re running a business now; the more organized you can get early on, the better off you’ll be down the road. Plus, it’s the first step to putting together a profit and loss statement, something you’ll want to get very familiar with as you grow. Here are links to tutorials:
Hopefully you’re now feeling a little less daunted by that shoebox. In an ideal world, you would tackle that shoebox a couple times a year, but even if you don’t, you can always make it more manageable by breaking it down, category by category. Categorize, organize and keep it simple!