Tax Lawyer's Blog

For disorganized people April is indeed the cruelest month.

If you haven’t gotten your tax information to your tax preparer by now, it’s probably because you’ve been running around like Robin Williams on Red Bull trying to locate your receipts.

You look in the glove compartment of your car and find a few records there. You look in your wallet and find a few receipts stuffed between a crumpled dollar bill and a business card from someone you don’t ever remember meeting.

But mostly you try to avoid thinking about it because when you do it makes you more nervous than a Chihuahua in the front row at an AC DC concert.

Unless you’re a masochist and enjoy self-torture, you will want to put an end to this by following the 5 steps discussed below.

But remember, without your commitment change simply cannot take place and like a Pavlovian dog you will continue to dread rather than embrace the most beautiful time of the year.

Step One: Keep Your Records Electronically

Every self-employed person or small business owner should keep their books using a reputable accounting software package such as Quickbooks or Quickbooks Pro.

And even if you are not self-employed, it’s a good idea to electronically keep track of your personal records and finances.

Keeping your records electronically is just the beginning, you still must have a system for retaining and organizing your underlying accounting records.

Here is how we recommend our self-employed and small business clients keep their records.

Step Two: Segregate your tax records by tax year

Whether you file your tax returns on a calendar or fiscal year, you report the results of your business operations for a twelve month period.

Consequently, your tax records should be separated by tax year.

This seems like a no-brainer, but more than a few times we’ve had clients give us boxes of records that contained several years receipts rather than just the receipts for the tax year we were handling.

This made our job more difficult and (you guessed it) resulted in an increase of our fees.

Step Three: Group your records into 4 main categories: Receipts, Expenses, Fixed Assets, Inventory, Liabilities

Set up a folder for each category as follows:

1. Include in the Receipts folder a copy of your reconciled bank statements for the year and any cash register slips or other information about your income
2. Include in the Expenses folder copies of all vendor invoices for the year and copies of all cancelled checks and credit card transaction reports
3. Include in the Fixed Assets folder copies of all invoices for the year relating to the purchase of furniture, fixtures, automobiles and equipment and copies of documentation for any sales of such assets you made during the year.
4. Include in the Inventory folder copies of all invoices related to the purchase of inventory or raw materials during the year and records of all physical inventories taken at year end.
5. Include in the Liabilities folder copies of all promissory notes, mortgages, equipment or premises lease agreements and payment schedules relating to same.

Step Four: Further group your Expenses

Your Expenses folder will contain the most documents and, therefore, needs to be organized further as follows:

1. Print out a Chart of Accounts from your Accounting Software
2. Create a folder for each expense account category included in your Chart of Accounts
3. Group in separate sub-folders all vendor invoices and/or canceled checks by expense account category

Step Five: Prepare and Maintain a Fixed Asset Schedule

Prepare a list of all furniture, fixture, equipment, real property and vehicles owned by your business.

The list should include the following information:

1. The date you purchased the asset;
2. A description of the asset;
3. The amount you paid for the asset;
4. The date you began using the asset for business purposes;
5. The date you sold, disposed of or ceased using the asset for business; and
6. The amount you sold the asset for.

Keep everything related to your business and organize it on a daily basis in accordance with the above instructions and you will minimize your accounting and potential tax problems.

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