Whether you’re a small business owner or a self-employed contractor itemizing deductions, it’s that dreaded time of year again, tax time. Are you running around collecting receipts and bank statements, wondering how you got yourself into this mess again this year? Well don’t dwell on it, let’s get started!
Step 1 - Find your Receipts
First you'll need to collect receipts and invoices related to business expenses. Try checking your wallet, desk drawers, car and email. You should have a designated area to keep your receipts, but most of us lack a good organization system for keeping our receipts in one place. Here is a list of the different types of receipts to look for:
Customer Invoices: Review your customer accounts to ensure that you've collected all customer invoices for the tax year.
Debt Collections: Review customer accounts for any bad debt expenses. Under an accrual basis, if a customer doesn't pay your for work completed, you can write off as a bad debt expense.
Business Expenses: Collect all receipts from any business purchase you made over the year and sort them into groups by expense type. Here is sample list of small business tax deductions, not all may apply to your situation . Make sure you consult with your tax advisor or CPA before claiming a deduction.
- Telephone and Internet Expenses
- Business Meals
- Travel Expenses
- Business Use of Your Car
- Business Insurance
- Charitable Contributions
- Retirement Contributions
- Mortgage Interest Paid
- Moving Expenses
- Real Estate Taxes
- Legal and Professional Fees
Vendor Accounts: Review your vendor accounts to ensure that you have paid them all in full. Make sure you have a copy of every bill from each vendor.
Grouping your receipts will make it easier to fill out tax forms. If you are ever audited you will need the receipts to justify why you claimed certain tax credits.
Step 2 - Reconcile Your Bank Accounts
You need to reconcile your bank accounts to insure that all the bank activity is recorded in your books and to identify any errors in your company or bank records. Compare each transaction from your bank statement with company accounting records to ensure the balance of each account is the same. If they are different, identify and fix any errors so that the balances match.
Step 3 - Separate Personal and Business Expenses
It is very important to keep your personal and business expenses separate. Overstating your business expenses can result in large amounts of penalties and interest if you are ever audited and found to have done this incorrectly.
Step 4 - Have an Accountant Review Your Expenses
Business owners should ask a tax professional to review their expenses before filing a tax return. This helps to ensure there are no errors made or tax deductions missed.
If you need help getting your business receipts organized, we are here to help. Whether you just need some help getting your books caught-up, monthly reconciliations or all of your bookkeeping we would be more than happy to get you started or do it for you.
For more helpful tips see our previous post Get Organized for the 2013 Tax Season.