Perhaps this article will help you see this tedious task in a new light. Follow along
with me and I can turn your bookkeeping nightmare into the best paying
part-time job you ever had. How much money do you make right now
-- per hour -- at your "regular" daytime job or in your business?
Is it $15 per hour? $25 per hour? $50 per hour? Make a mental note
of that amount, ok? Now, let's say by "keeping the books" this
month, you are able to find $1,000 worth of deductible expenses.
Let's also assume you are in the 35% tax bracket (15% federal
income tax plus 15% self-employment tax plus 5% state tax). So,
for every $1,000 of deductions, you save yourself about $350 in taxes
($1,000 x 35% tax rate). One more assumption: it takes you about 2
hours to properly record and document that $1,000 of deductions.
Hmmm. You spend 2 hours and save $350 bucks. How much
money did you just make for yourself -- per hour? $175 per hour!
Whoa -- now, compare that to how much you make per hour working in your
business or at an employee job. Which "job" paid you more? Even if
it takes you 4 hours -- it's like having a job that pays you $87.50 per
hour. Still a pretty good hourly wage, don't you think? How does
that make you feel about bookkeeping? Not such a bad deal after all, is
it? With Tax Season filing deadlines right around the corner,
here's a simple six-step bookkeeping system that will put thousands of
dollars of tax savings in your pocket and keep the IRS out of your life.
1. Maintain a separate bank account for your business.
Never use your personal bank account for business expenses. Having a
separate bank account automatically creates the "shell" for the perfect
documentation system. If you don't have a separate business bank
account, now is the time to get one. 2. Maintain a separate
credit card account for your business. Same deal as the bank account --
pick one credit card that you use exclusively for business expenses.
3. These 2 accounts (one bank account and one credit card
account) should only be used for business! Never "co-mingle" business and
personal financial information. The only income that goes into
your business bank account is business income. The only expenses that are
paid from the business bank account and business credit card account are
business expenses. 4. For each major income and expense
category, create a simple filing system each calendar year -- one file
folder for each major category. Every time you write a check or use the
credit card for a business expense, you assign that expense to the
appropriate expense category and file the supporting documentation
(receipt, invoice, cancelled check, or whatever) into the corresponding
file folder. 5. Keep a separate file folder for all monthly
bank account statements and credit card statements. 6. Use
a simple bookkeeping software program like InternetTaxHelper to record all
deposits, checks, and credit card charges. Once a week or once a month,
input all transactions into InternetTaxHelper and assign each transaction
to the appropriate income or expense category. The importance of
this "categorization" process cannot be stressed enough -- it's the key to
the whole system! There are any number of software programs out
there for this purpose. I've used them all: Quicken, Quickbooks, Money,
etc. Spreadsheet programs like Excel can also be used to automate business
record-keeping. But my favorite bookkeeping program for the Small
Business Owner or Self-Employed Person is InternetTaxHelper -- it is by
far the easiest to learn and simplest to use. If your business grows, you
can always invest in a more sophisticated program later. For any small
business owner, especially if you're just starting out, this is the best
program I've ever seen. Using a software program like
InternetTaxHelper is a tremendous time-saver. Once you've input all your
individual income and expense transactions, and assuming you've assigned
each transaction to the appropriate category and filed the paperwork,
you've already completed all the work necessary to audit-proof your income
tax return! For more information on InternetTaxHelper, go to: http://www.internettaxhelper.com/g.o/Env20
One final comment: If you aren't "computer-savvy", that's OK. You
can still use good ole pencil and paper to categorize your business
expenses. I have clients who use nothing more sophisticated than a
spiral notebook. Each year they buy a new notebook and label each page
with a particular income or expense category. Every transaction
gets written down in the notebook on the appropriate page. At the end of
the year, they add up the totals for each page, and presto, they give me
an annual recap of all major income and expense categories. Get the
picture? It doesn't have to be fancy. It just has to be in writing,
accurate, and supported by actual paper documents. Whether you use
your computer or not, the end result is the same: Every single transaction
has been assigned to the appropriate category, and every transaction has
the corresponding "paper trail" -- every receipt, invoice, cancelled check
and credit card charge has been filed into the appropriate file folder.
Should the IRS question any income or expense amount on your return,
you'll be ready!
| 
