It is that time of year again. It’s time to get organized. But never fear because taxes aren’t really that daunting of a task—as long as you’re properly prepared. I’d like to give you a few steps to make sure the process is as painless as possible:
Step 1 – The Physical Gathering
If all of your expenses are well organized inside your accounting software you can probably skip this step because you’ve already recorded everything. If that’s not the case though it’s time to get everything into one central location. Don’t worry about organizing at this stage. The important thing is that you have ALL of your receipts in front of you.
Step 2 – The Digital Gathering
If you’ve been recording your payments and expenses throughout the year, now is the time to run your reports.
If you have any receipts or payments you haven’t recorded, now is the time to gather them. Some files might be in emails, others in local folders. Search through your email to save any relevant attachments or print out statements from financial institutions. At the end of the day, you’ll want to get everything into a single folder on your computer for easy finding later on.
Step 2.5 – The Hand Off
If you are planning on getting an accountant to prepare your taxes for you, this could be the time where you do the hand off. Place the files in an envelope or box and drop/mail/courier it off. Don’t forget to save the digital files to a flash drive or copy them into a shared folder. Your accountant can take care of the organization, but if you want to reduce your bill, wait to do the hand-off until after step 3.
Step 3 – The Organizing
Now that you have everything on your desk and on your screen, let’s get it organized. Stack the papers into categories – office expenses, advertising costs, travel expenses, etc. If you have a home office, make sure to keep house expenses (utilities, mortgage, etc.) in their own stack too.
At this point, you can do one of two things with your digital receipts:
- Print them out and add them to the proper stacks.
- Setup sub-folders with the same categories you used for your paper receipts, and place each file into the right folder.
The other thing you should do at this point is look for duplicates, ensuring you don’t have a paper and digital copy of the same receipt.
Step 4 – The Calculating
If you have everything tracked in your FreshBooks account this step will already be done for you (nice).
For anything you haven’t tracked in FreshBooks, you’ll now have organized in stacks. Let’s do some calculating. Yes, you could do this while you’re doing your return, but it’s a much safer idea to do it now, combined with Step 5. Go through each stack with a calculator, and get a total for each category. Depending on if you track any sales taxes, make sure to calculate that too. When you’re done, each stack will have a:
Step 5 – The Review
In my opinion, this is the most important (and most often skipped) stage of the process. Ideally, you should go away for a while and come back to your files with fresh eyes. Now, take a look at the numbers you’ve calculated. Do they make sense? Maybe the actual math adds up, but the logic doesn’t. Did you really spend $10,000 on office supplies, but only $17.50 on advertising last year? If not, review those categories.
Maybe there are duplicates, or you put those brochure printing receipts in the wrong category. This would also be the time you could match up your receipts to your bank statements to see if anything is missing. Do the same with your income. Once you’re satisfied that the totals make sense, then you’re ready to file.