Simple Steps to Get Prepared for Next Year's Taxes on NPBusiness.ORG

Two Simple Steps To Get Prepared For Next Year’s Taxes

How can you make sure you’re prepared for the new tax year just around the corner?

Easy…

The single, best way to prepare for the tax season ahead is to, drum roll please… get organized!

It’s simple and 100% effective.

How else could you possibly prepare your taxes if you don’t have the information required for the return or if you don’t know where to find it? The information I’m referring to… all sources of income and related expenses, business and personal.

You just can’t complete your return if you don’t have that information. It’s next to impossible. That’s if you’re going to stick to facts and refrain from making up numbers.

But before you can report income and expenses, you must first track them. That’s why for you, the business owner, utilizing a bookkeeping system is crucially important to the success of your business.

However, you want to go steps beyond the basics. You want to get organized, so it will be easy for you to track every dollar coming in and going out.

By putting the right type of systems and processes in place, it’ll be so much easier to capture that information. And it’ll be much more likely for you to stay organized and keep your records up to date throughout the year.

So here is what you’ll do to get organized…

Find a Home for your records. That’s one place and one place only for all your records.

That’s for everything! And it doesn’t matter if you keep paper or virtual records.

If you keep paper records, pick a drawer in a file cabinet.

If you keep digital records, create a folder on your hard drive.

No matter which format you keep, place all records you need to keep in this one place.

That’s it. I know, I told you it was simple!

But before you decide on where you’ll store all your records for the year, there are two steps to complete.

First, decide how you will you keep the actual records:

  • Will you keep paper or digital records?
  • If you keep digital records, how will paper receipts get into digital format?
  • Where will you store your tax folder? The filing cabinet in your office? Will it be on your local hard drive? Or will it be on DropBox, Box, Google Drive, or some other place in the cloud?
  • How often will you add to and update records? Daily, weekly, monthly?
  • How secure will your records be? Consider potential theft, fire, flood, disk crash, etc.
  • For digital records, do you have a backup plan in place?

Second, decide which documents to include:

To claim any deductions, you should have the corresponding receipts. What will you keep and how will records be organized in your tax folder?

It’s best to have a system, to develop a process for keeping your records. And once you do, commit to it. Follow it each and every single time when there is a receipt or document to keep for taxes.

Here is a suggestion on what to include and how to organize your tax folder:

  • Bank Statements… today most are digital. Make sure you download statements into your folder. Don’t rely on your bank to retain statements forever. Just download your statements when they are available. That way you won’t have to pay a fee to get them later, or not be able to access them at all a few years down the road.
  • Credit Card Statements… again, most are digital today. Just download your statements as they become available and you’ll have them when you need them. Most of our business and personal life is transacted and documented via credit card. Therefore it’s important you have access to all your credit card statements.
  • Mileage… you can track your miles with pen and paper or use an app to accomplish the same. Take a look at apps such as Mile IQ, MileBug, Mileage Tracker… just to list a few. These apps make it easy and accurately track all business miles.
  • Receipts, all types… receipts prove deductions. This is particularly important if you pay cash for things. As long as you have the receipt, you can back up the deduction. Digitize your receipts by taking pictures. Or scan your receipts. Most receipts tend to fade within a few years and become unreadable and hence useless. You may also want to include receipts for charitable donations here. Keep receipts for smaller donations and most certainly retain receipts bigger donations.
  • Tax Documents… Include documents for interest and dividend income, all 1099s, all W-2s. Keeps receipts for employment, unemployment, and self-employment taxes paid. Document how much you paid per quarter and when you made the actual payments.
  • A copy of last year’s tax return… so you can refer to it throughout the year. You don’t want to have to hunt for your return when your accountant asks you for it or if you should need it for some reason.

So here you have it, a list of items to keep and a structure for your tax folder (be it physical or digital).

Once you decide on a location and structure, don’t change it. Stick to it and use it throughout the year.

Your big payoff for using this system comes at tax time; when it’s time to file your taxes. Preparing your taxes will be as easy as opening a drawer and reaching for what you need.

Here’s what to do next…

If you have a filing system for your taxes, take it through a review. Does it still serve its purpose? Or should it be updated?

If you don’t yet have a set way to track your tax records, consider what I outlined above.

Create a folder, physical or digital. Gather all your tax information up to this point and deposit it in this one folder.

Make it easy on yourself. Keep all your records together, in one place. I promise you, when the time comes to prepare your taxes, your life will be so much easier.

 

By Johanna Hofmann, MBA, author of “Smart Business Planning for Clinicians” and a regular contributor to the NPBusiness blog.

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