Are Your Books in Order?
Avoid tax-time headaches with these organizational tips.
Tax season has hit full on. It's time to get organized not only for preparation of your 2009 income taxes but to get rolling on 2010. The agony of compiling tax data last-minute can be cut considerably by employing a few organizational skills.
- Pack up 2009.You've got to clear the way for 2010, which means you have to make room. Get 2009 out of there. I store my vendor files, appointment book, and bank records in a plastic tub marked with the tax year. Some files are considered permanent and remain in the office: Insurance policies, capital asset files, investment accounts, real estate and capital improvement files, to name a few.
- Shred older files.But beware! The IRS requires that you retain records for certain periods of time depending on the type of paperwork. You will need to produce bank statements and receipts if you are audited. Go to www.irs.govand look at publication 583 for records retention guidelines. You should keep copies of income tax returns for one year more than the IRS dictates if you live in a state that levies an income tax. The state's audit period is generally that much longer than the IRS' audit period. Tax returns that generate carry forwards, such as a big stock loss that isn't used up in one year or a net operating loss--actually, any tax return with items that affect future years, should be kept indefinitely.
- Track mileage.If you use your vehicle for business, mark your beginning odometer reading in your appointment book under January 1. Go to the page for Dec 31, 2010 and make a note to get your ending odometer reading. The IRS asks for your total mileage on the tax return. This year let's give them an accurate figure. Throughout the year, mark down your business destinations to document the business usage of your vehicle.
- Collect 2009 Documents.If you didn't do this at the beginning of last year, create income tax files for both 2009 and 2010. Mine is bright red. Throughout the year as taxable transactions occur, I collect all documents in the file. When you receive third-party reporting documents such as 1099s, K-1s, W2s, 1098s, etc., file them away immediately. You'll also use this file to keep receipts for tax deductable transactions throughout the year. This will make data compilation much easier--just grab the file, a back up of your QuickBooks data, and head out to your tax pro.
- Go Digital--Go Green.If you haven't yet done so already, it's time to drag your bookkeeping system into the 21st century by purchasing accounting software. Most packages, such as QuickBooks are very simple for the non accounting professional to use. Tax return preparation, financial and tax planning are simplified because of the comprehensive reports generated by a decent accounting program.
Going digital is also a good way to green your business. I realized a year or two ago that whenever a client calls with a question about his tax return, I don't pull a hard copy of his tax return from the filing cabinet; I view it on the computer screen instead. So why bother having a paper copy of the return? Now it's all on my hard drive. Beware: A computer crash can wipe out everything. It's important to implement a regimented back up routine which I store off-site every night. The back up is a mirror image of my hard drive and can be loaded onto a new hard drive in the event of a computer crash, which incidentally, happened to me six months ago. What a relief to know I would be back up and running within hours.
Entrepreneur Editors' Picks
This Founder Quit His 'Prison'-Like Teaching Job Within 2 Months. Now, He and His Sister Are Helping Other Teachers Leave the Classroom and Achieve Financial Freedom.
If You Focus on Problems, You'll Only Find More Problems. Here's How to Focus on Solutions.
Facing More Than 15 Years in Prison, This Founder Transformed His Hustle Into a Powerful Personal Brand and Business. Now, He's Giving Back in a Big Way.
Apple Asks This Jarring Interview Question as a Secret Way to Evaluate a Candidate