It’s that special time of year once again - Tax Season. Â I have spent most of the weekend and week getting my paperwork in order, but thanks to technology this task seems to be getting easier and easier every year. Â I can’t give you any great tax advice, but I can give you some helpful tips to ensure you are organized, ready and able to maximize your tax deduction. Here we go:
Keeping Receipts Organized
I am by no means a paper person. Â If you hand me a piece of paper you might as well equate it to tossing it in the trash because I’m 99.9% likely to either lose it or forget where I put it. Â If you are like me than you should consider:
- investing in a nifty personal scanner (however,Â if you have a smartphone then you already have a personal scanner), and
- opening a Dropbox.com accountÂ (it’s free)
An alternative to using Dropbox is Shoeboxed.com.Â For a fee Shoeboxed.com will help you electronically organize your receipts; so if you are one who has boxes filled with receipts you may consider this service.
I prefer free, so here is how I use these my iPhone and Dropbox to keep my receipts organized:
First, I created a new folder in my Dropbox and I named it after my Etsy shop – “HerbanLuxe“. Â Then, in the HerbanLuxe folder, I created a subfolder for the year “2011″ (and now one for 2012). Â In each subfolder I created subfolders as follows:
- Office expenses ( for office furniture, equipment, tablets, laptops)
- Supplies (for pens, paper, printer ink)
- Materials (for things I use to create my products)
- Advertising (for blog ads, magazine ads, giveaways stuff)
- Shipping (for postage purchases)
- Travel & Entertainment (for mileage logs, gas receipts, toll and parking receipts)
- Events (for registration receipts)
Every time I have a receipt, I take a picture of it and upload it to the appropriate sub-folder (tip: use a name convention such as Vendor-Day-Month, so you are able to find receipts for specific purchases). I also save electronic receipts I receive via email in the same manner. Â I’ve downloaded the Dropbox.com app to my iPhone so I can just automatically save the receipt photos without having to connect to a computer. Gotta love technology!
This means that I’ll never lose another piece of paper again and if my laptop decides to crash, my receipts are still safe in the cloud. Â Granted, I have conditioned myself to snap that picture before the receipt ends up in the bottomless abyss I call a purse or scrunched up in one of my many pockets.
Getting a handle on your receipts and keeping them organized electronically is only part of the battle. Â A major player in the tax preparation game is Bookkeeping. I am not big on using outside sources to handle my bookkeeping because I’m a bit of a control freak – I like to see where, when and how much income I’m generating and how much of that income is leaving my hands. Â This is where Bookkeeping software becomes your friend.
There are lots of options out there, one of the most popular is Quicken. Â However, it’s way too complex for my taste so let me introduce you to my BFF, Outright, aÂ FREE bookkeeping software.Â Outright is not only free, it’s super easy to use. What makes Outright awesome is it’s ability to connect and pull your financial from your Etsy, PayPal, and other accounts you configure.
Once you have granted Outright access to your accounts, it will sync and update itself with the financial data it retrieves from your accounts and it will try to categorize your income and expenses. Â You can then go in and re-categorize items on the fly. Â You can also add transactions which may not be included in your electronic records, such as cash transactions.
After all your data is updated you can create snapshots of your activity for a certain month, quarter or year; making it an awesome tool for tax time.Â If you pay for a Shoeboxed.com account, you can integrate it with your Outright account.
I’ve connected Outright to my Etsy shops, Paypal and the bank account I have setup for business use only. Â Every time I log on to Outright my data is updated and I can keep track of all my expenses and income. At tax time I can create a report that can be used to complete my income tax return.
Â Sorting Through Records
Once you have your receipts organized electronically and have configured Outright or your preferred bookkeeping software, it’s time to do some housecleaning. Â The information your bookkeeping software provides is only as good as the information it gets. Â What does this mean? Â It means that some effort is still required on your part. Â I know, I know…bummer, right?
I suggest checking your bookkeeping records on a monthly basis just to make sure that it is connecting to your accounts and the information is being classified correctly. Â For instance, Â I’ve connected my Outright to a bank account I use for business, but there are times when I accidentally sneak in a personal purchase. Â Outright will not know which expenses and income are personal in nature, so you have to tell it by classifying any non-business expenses as “personal expense” and any non-business income as “personal income”. Â Any income and expenses classified as personal will not be counted in your business reports ensuring you have a more accurate picture of your business activities.
Keeping good, accurate records is extremely important. Â If you were ever audited by the IRS, they would now ask you for electronic backup of your receipts and your bookkeeping software. So it’s time to toss the shoebox and move into the new century. You don’t need an MBA to get the job done, you just need the resources.
(p.s. You can use all these tips for organizing your personal receipts and bills as well)
For more helpful resources and information check out the following:Â
The IRS has a video portal that offers useful information covering various small business topics, you can access the videos by visitingÂ http://www.irsvideos.gov/SmallBusinessTaxpayer.
You can also access the IRS Virtual Small Business Tax Workshop by visitingÂ http://www.irsvideos.gov/virtualworkshop/