When I worked with internal audit and the tax department, I knew documentation was everything. Evey day I lugged binders to and from meetings. Every year my chore was to organize the binders efficiently so internal and external auditors could find the information they needed. Binders were my life, from organizing to compiling. After I left the department I never wanted to see a binder again!
Now that I am a small business owner, I can understand keeping accurate records of your financial information is critical. I laugh now that those dreaded binders have now come back into my life. Here is how I keep my small business records organized throughout the year.
Step 1: Get a large binder. Title the binder “year – taxes”
Step 2: Get dividers. Title them based upon what type of tax receipts you will be keeping. Also include areas for reports, and tax filings and personal tax categories. Although I am not an account, certain important documentation could be business meals, supplies, postage, software and hardware purchases, donations etc.
Step 3: The day you make the taxable purchase, tape the receipt to a piece of paper. Write any key information on the paper such as time/date/purpose of the lunch meeting or the items you gave to charity. Use a 3 hole punch and put the paper in the binder under the correct tab.
Additional steps:
Binders are not the only way I stay organized. I also utilize software such as Quicken Home and Business to enter my expenses and Turbo Tax’s Its Deductable. Quarterly, it’s possible for me to print P&L statements or print off reports from Its Deductible for accurate donation records. I also attach the receipts from the charity to the report.
Also, keep a log book in your car. This log could be a small binder with a form created in MS Excel or a simple log book. By having a binder in the car, you can gather accurate information when you try to calculate the approximate miles you’ve spent traveling for business purpose.
During tax time, once I get key forms such as W-2s or 1099s, I file them in the folder pockets until I am ready to sit down to prepare my tax returns. My preference is to use Turbo Tax’s Online system to enter in my information. However, you will be saving time and money with your accountant by having all of your documentation prepared for review.
Once my filings are complete, I simply keep a copy for my tax binder. I file the binder on a shelf for a rainy day or destroy it once it’s no longer applicable. (Please see: IRS – How long should I keep my records) That way if I am ever audited (heaven forbid!), all of my records are in one place and I can simply hand my binder over to the IRS for review.
By the little effort it takes throughout the year keeping my documents organized and efficient, preparation is seamless. With using a binder as a “catch all” for all tax information, filing taxes this year wasn’t a drag….