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Follow These Record-Keeping Tips to Maintain Your Sanity at Tax Time

Updated on December 14, 2016
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Shauna has been in the accounting industry for over 30 years. Her expertise has brought her repeat freelance clients come year end.

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The end of the year is busy and oftentimes stressful. After all, we have two holidays back to back that require time, money, and preparation. On top of that, by December 31st, it’s out with the old and in with the new. Oh, I’m not talking about cleaning out your closets or the shed. No, I’m talking about financial records, files, receipts, and getting your ducks in a row to present to Uncle Sam.

Daunting, isn’t it?

Well, it doesn’t have to be. Follow these tips and year-end clean up is a breeze. So is gathering your records in preparation for filing your annual tax return.

These tips are meant to make life easier for those of us who work from home as entrepreneurs or solopreneurs. Lord knows we’re busy enough as it is, so why not organize your records? It’ll save time and tons of stress. Trust me!

Keep current-year files close at hand
Keep current-year files close at hand | Source

Organize Your Physical Files

Many of us still prefer to receive our bills in the mail and pay by check. Dedicate a drawer in your desk or a portable file system to house current year receipts. Make a folder for each creditor and label it with the current year on the tab. It’s also a good idea to have a folder for medical expenses, as you’ll be asked for this information on your tax return.

Also, make a current year folder for your business expenses, if applicable. Drop all your receipts in the folder after recording the expense. If your receipts match up to a bank or credit card statement, make a copy to drop in your business folder. (More on recording business related expenses later in this post).

If you have a filing system for papers such as marriage certificates, insurance policies, warranties, vehicle titles, tax returns, etc., (and you should!) year end is the time to clean it out. Go through each folder and trash anything that has expired or no longer applies to your household.

You’ll want to keep bank statements, paid bills and the like for three years. Store them in the cabinet with the files you’re keeping for long term. The IRS only has three years to audit a return, so anything older than that, you can send to file thirteen, including all backup.

Shred all discardable documents and add them to your compost pile or use them as kindling for the fireplace.

Now that you’ve gotten your physical files organized, it’s time to set up a record keeping system that you will maintain on a regular basis. This is where maintaining your sanity comes into play.

Spreadsheets Are Your Friends

Now, don’t go getting all bonkers on me. Even if I didn’t have an accounting background, I’d still use them. They are the easiest way to maintain records and have the information available to you at a glance. Learning to insert formulas in Excel is not hard. And not having to run a tape (on the calculator) come tax time is a huge time saver.

For those of you unfamiliar with Excel, here’s a basic tutorial that walks you through how to set up a spreadsheet and format formulas:

How to Copy and Paste in Excel

Always remember to clear all data, with the exception of the formulas. That way the calculations will perform automatically as you add new data.

As you see by the photo below, I’ve cleared all data but the formulas are still there waiting to go to work for me!

Recommended Spreadsheets to Track Business Activity

I have several spreadsheets I maintained for my business and still maintain for my personal tax return. Below is what I recommend to make your job easy come tax time. This type of record keeping also serves you well any time you need to provide financial information to an entity that requests it. At the push of a button you can attach these spreadsheets or convert them to PDFs and email them to the requesting entities

Track your earnings by customer
Track your earnings by customer | Source

Freelance Earnings

Open a new workbook and name it Freelance Earnings or whatever floats your boat. Just make sure it’s something you’ll remember when you need to look for it.

Add your name, business name, name of the workbook, and the year it pertains to. (See photo).

In my Freelance Earnings workbook, I’ve added worksheets that pertain to my business. They are as follows:

  1. Earnings 2015
  2. Expenses 2015
  3. Mileage 2015
  4. Overhead Expenses 2015

Note: I closed my freelance business in 2015, but the information I provide in this article is evergreen.

Under the Earnings tab, I’ve named the columns thusly:

  • Column A – Project Name
  • Column B – Date invoiced
  • Column C – Invoice number
  • Columns D thru M - each are assigned to an income source (client)
  • Column N – Subtotal (the total of all numbers in the row)
  • Column O – Total (this is actually redundant)
  • Column P – Date paid
  • Column Q – Less fees (sometimes PayPal assesses fees for non-verified payers)
  • Column R – Amount Paid (the net paid to me)
  • Column S – Balance (unpaid balance)
  • Column T – Monthly total (this requires a separate formula that varies depending upon how many rows of entries I have in a month)

At the bottom of the spreadsheet I have formulas for each column. This lets me know at a glance how much I’ve made from each client. This comes in handy when you’re re-assessing your client base. It’s also helpful at year-end; you know from which clients to expect a 1099 (anything over $600).

Then there’s a formula running across to give me a grand total. It should agree with the totals in columns Q, R, S, and T. This is called a ‘proof’. If the totals don’t cross-check you’ve got an error somewhere.

At this point I’d like to interject. If any of my readers feel overwhelmed with setting up spreadsheets, I’ll be more than happy to do it for you. Then all you’ll have to do is drop in the information as it occurs. Shoot me an email via the Bravewarrior profile page (look under "fan mail.")

Track your business expenses
Track your business expenses | Source

Expenses

Next, we’ll move to the Expenses worksheet. This is where you’ll track all your business related expenses. I’ve set this one up a little differently. The first three columns are Date, Payee, and Total, respectively. The fourth column is left blank in order to see the total without having to go to the last column. You’ll see why I’ve set it up this way when you see the columns I’ve named. Remember to include all tax deductible operating expenses, otherwise known as cost of doing business (outside of overhead – we’ll address that later).

Here’s what you should include in your spreadsheet:

  • Office supplies – paper, ink, toner, pens, pencils, etc.
  • Software
  • Hardware – CRTs, monitors, laptops, speakers, printers, etc.
  • Training – any seminars you attend or online training for which you pay a fee
  • Repairs & Maintenance (R & M) Equipment – computer repairs, etc.
  • Advertising/Marketing – this does not include mileage but actual costs for getting your name out there. This could be stickers for your vehicle, business cards, printing charges, etc.
  • Licenses/Taxes – your occupational license and fees for the registration of your business name qualify here. I also list my annual domain name and website fees in this column.
  • Insurance – if you have separate insurance for your business only, such as Professional Liability
  • Contest Fees
  • Fees (other) – this would be bank charges, PayPal charges and any other fees you absorb in order to be paid.
  • Postage
  • Entertainment – if you take a client to lunch or dinner, be sure to write the name of the client and what was discussed on the receipt, otherwise you can’t write it off.
  • Travel – again, this does not include mileage; that’s a separate calculation. This would include airfare, hotel stays, car rentals, etc. provided they are business related.

You’ll want to have total running down each column (vertical) that will ‘proof’ to the row (horizontal) totals.

The Mileage tab is pretty straight forward. Basically, it looks like this:

Log your mileage
Log your mileage | Source

When you drive to a networking event, the post office, the office supply store, to meet with a client, or entertain a client locally, your mileage is deductible. The IRS posts a different rate each year. Your tax software or accountant will make the proper calculation once you provide the total mileage. Parking fees and tolls are also deductible, so be sure to keep the receipts and log them. I usually keep a separate column in the mileage spreadsheet to track parking and tolls (see Medical Expenses sheet later in this post for an example).

Note: if you use a vehicle for work purposes only, you can choose to include gas and oil, repairs and maintenance on the vehicle in the operating expenses area. However, you cannot write off mileage if this is the way you go. Also, you should amortize the vehicle (depending on its age) if it is, indeed a company vehicle.

Overhead Expenses

Moving on to Overhead Expenses:

If you work from home and have a dedicated office (I converted my third bedroom into an office), you can deduct a portion of your overhead. The calculations are based on the square footage of your office divided by the total square footage of your home. Your tax software will do the math based on the square footage you provide.

These are the items you should record on a monthly basis:

  • Mortgage payment – if your taxes and insurance are included in the payment, you’ll have to break the principle out when you file your taxes. Simply deduct your insurance and property tax numbers from the total payment for the year to come up with the correct breakdown.
  • Electric
  • Gas – to cool and heat your home/water
  • Water
  • Home Repairs – this only applies to repairs that affect the entire house, such as re-plumbing the structure, re-wiring, etc.
  • Cell phone – if you use it for business.
  • Phone – if you have a dedicated phone line, include this in the expenses worksheet, rather than here.
  • Internet – this especially applies to writers. Any self-employed professional who relies on the Internet to conduct business should include this cost.

Track your overhead expenses
Track your overhead expenses | Source

Simple Spreadsheets For All Taxpayers

For all taxpayers who itemize deductions, it’s a good idea to maintain spreadsheets for your Medical/Dental expenses, and Charitable Contributions. Track your mileage for both categories as well, as it counts towards your out-of-pocket expenses and is deductible.

Your Medical/Dental spreadsheet is a very simple layout, as you’ll see below:

Track your medical expenses, including mileage
Track your medical expenses, including mileage | Source

Your premiums are deductible, as are prescriptions, doctor visits, hospital stays, lab work, out-patient treatments, etc. If your physician has prescribed a weight loss plan or gym membership to treat a specific disease, including obesity, those are deductible as well. Note the key word here is prescribed. Your doctor mentioning you should lose weight does not qualify you to take this deduction.

For more on what qualifies as allowable medical and dental deductions, read this IRS document

Charitable Contributions

When setting up your Charitable Contributions spreadsheet, the following information should be included:

  • Date of contribution
  • Name and address of charity (make sure it’s recognized by the IRS)
  • Description of donation – check, cash, household goods, clothing, etc.
  • Value
  • Totals – total each row then create a cross-check total of each column across the bottom row. I think you’ve seen enough spreadsheets now to know what it should look like.

Be sure to track your mileage, especially if your donation is that of your time in a volunteering capacity.

It’s wise to maintain these spreadsheets even if you don’t think you have enough deductions to itemize. Your tax software or accountant will determine whether you should itemize or take the standard deduction.

Being prepared is a good practice to follow.

How do you deal with tax season?

Is filing your taxes stressful?

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Conclusion

You can make your life a whole lot less stressful by maintaining spreadsheets to track your income and expenses as each event occurs, rather than scrambling at the last minute.

Year-end is a breeze. Filing your taxes is a drop in the bucket.

Keep your sanity in check and your business records organized by following the tips I’ve provided in this post.

How do you account for your business activity? Let me know in the comments below. Also, if you found this post helpful, please share it by pressing any of the social media buttons to the left.

Have a successful and stress-free year!

Peace,

Bravewarrior

Parody on "Money for Nothing:

© 2016 Shauna L Bowling

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    • FlourishAnyway profile image

      FlourishAnyway 3 months ago from USA

      Great useful tips and I like that you are writing here again. Would be really useful in the situation of being audited to have all your stuff organized so well. Hope you are well.

    • bravewarrior profile image
      Author

      Shauna L Bowling 3 months ago from Central Florida

      Flourish, I'm all about organization when it comes to taxes. It makes life so much easier and less stressful.

      I am doing well. Thank you for asking.

    • Genna East profile image

      Genna East 3 months ago from Massachusetts, USA

      Hi Shauna. As an entrepreneur, I know exactly what you mean. Receipts are the bane of my existence. I dislike paperwork and love technology as it saves us from having to file hard-copies. I usually keep my receipts (the IRS wants to see these during an audit) -- barring an e-copy acknowledgement of the order/purchase -- in a box, by year. Those records I can toss after several years. Payroll records we keep forever. Hugs for the Excel/spreadsheets reports tips -- that is very good advice. We use these as well as QuickBooks SW to track everything. Organization/documentation is the key to everything. Excellent hub.

    • billybuc profile image

      Bill Holland 3 months ago from Olympia, WA

      All great tips, Sha! Thanks for the refresher course. You know, I still hear from quite a few writers who do not take deductions for writing....not sure why that is, but in my opinion, if the deductions are there then they are worth taking. Anyway, have a great Sunday!

    • bravewarrior profile image
      Author

      Shauna L Bowling 3 months ago from Central Florida

      Genna, I keep all my receipts by vendor and year and toss them after three years. However, I keep all home repair receipts indefinitely. You never know when you need to call on a repair service you're pleased with. Going to the Home Repairs folder is much easier than trying to remember what year the repair was done, then locating the information.

      It sounds like you're very organized. Kudos to you!

    • bravewarrior profile image
      Author

      Shauna L Bowling 3 months ago from Central Florida

      I agree with you Bill. It's especially important to take those deductions if you don't pay quarterly income tax, as recommended. The more you can deduct, the less you'll have to pay.

      Off to the grocery store to get the ingredients I need for Christmas cookies. I'd better get baking... it'll be here before I know it!

    • MartieCoetser profile image

      Martie Coetser 3 months ago from South Africa

      Best tips! Although I use Pastel for formal bookkeeping, I do a lot - more than a lot - on/in/with Excel. I absolutely love this program!

      Our financial year is from March 1st to February 28th. I am surprise to know that yours are from Jan 1st to Dec 31st.

      Merry Christmas to you and yours, dear Sha!

    • Larry Rankin profile image

      Larry Rankin 3 months ago from Oklahoma

      Great tips!

    • always exploring profile image

      Ruby Jean Fuller 3 months ago from Southern Illinois

      I usually share an article on Twitter that I deem useful and important to friends or anyone, but twitter is no longer listed. I miss it. This article is really good and presented with easy instructions. Tax time can be stressful if one hasn't kept records. Excellent!

    • bravewarrior profile image
      Author

      Shauna L Bowling 3 months ago from Central Florida

      Merry Christmas to you too, Martie!What is Pastel? Is that an accounting software?

      Even at work we use Excel in addition to several other construction software programs.

      The fiscal year, as far as taxes go is January 1st thru December 31st. However, I know of many companies that run their year from July 1st thru June 30th. Not sure why that is. It would be easier to keep with the calendar year, in my opinion.

    • bravewarrior profile image
      Author

      Shauna L Bowling 3 months ago from Central Florida

      Thank you, Larry. And thanks for the visit!

    • bravewarrior profile image
      Author

      Shauna L Bowling 3 months ago from Central Florida

      Ruby, I didn't even notice that we no longer have a Twitter button. I wonder why? And what is the second F? That's a new one on me!

      I'm glad you find this article informative with easy-to-follow instructions. It's so much easier to log transactions as they happen rather than wait until tax time. No wonder people get stressed out!

    • marcoujor profile image

      Maria Jordan 3 months ago from Jeffersonville PA

      Helpful, practical and timely tips, dear Sha.

      I enjoy being organized and I know our accountant enjoys it as well. I have Mom to thank for my good habits.

      Have a peaceful night - great seeing you publishing again. Love, mar

    • bravewarrior profile image
      Author

      Shauna L Bowling 3 months ago from Central Florida

      Mar, I'm sure your accountant loves you for being organized. It makes his job so much easier!

    • profile image

      Nell Rose 3 months ago

      Great advice Shauna! and something we all go eek at when the time comes to do our taxes! lol!

    • bravewarrior profile image
      Author

      Shauna L Bowling 3 months ago from Central Florida

      Keeping records as you go makes tax time a breeze, Nell.

    • MsDora profile image

      Dora Isaac Weithers 3 months ago from The Caribbean

      Shauna, thanks for your very practical suggestions on organizing and recording to manage taxes more easily. Good time to start!

    • bravewarrior profile image
      Author

      Shauna L Bowling 3 months ago from Central Florida

      You're welcome Dora. I thought now would be a good time to post rather than closer to tax time. This way, readers who aren't keeping ongoing records can start the new year off on the right foot.

    • profile image

      teaches12345 3 months ago

      Wonderful suggestions for all tax payers. I find keeping a detailed log is best for me as I tend to forget over time what has transpired during the year (even the week!).

    • bravewarrior profile image
      Author

      Shauna L Bowling 3 months ago from Central Florida

      Dianna, that's smart bookkeeping on your part. It's so much easier to log events/expenditures as they happen. It's a real time-saver in the long run. Besides, it only takes a few seconds and there's no scrambling or searching for receipts come tax time.

    • Gina Welds-Hulse profile image

      Gina Welds Hulse 2 months ago from Rockledge, Florida

      Great timely tips! I needed to see this.

    • bravewarrior profile image
      Author

      Shauna L Bowling 2 months ago from Central Florida

      I'm glad you found this helpful, Gina. With all your business ventures, I'm sure you'll put the information to good use.

    • Shyron E Shenko profile image

      Shyron E Shenko 2 months ago

      Shauna, this is so fantastic, I love spread sheets too and do use them to do taxes and usually have everything ready to roll by this time, but not this year, I have not felt like doing anything this year, I have had the flu a couple of times hubby and I keep sharing it.

      I was unable to look at the video, it did not work for me, having problems with my computer.

      Blessings and hugs dear friend.

      P.S. the second "F" is for flipboard.

    • bravewarrior profile image
      Author

      Shauna L Bowling 2 months ago from Central Florida

      Shyron, sorry to hear you and hubby have been swapping the bug back and forth. I hope this is a better year for you.

      Thanks for clearing up the second F for me. I figured that out through a forum about Flipboard. Frankly, I'd never heard of it. Guess I'm falling behind the times!

    • cam8510 profile image

      Chris Mills 4 weeks ago from Colorado Springs, CO until the end of March

      Shauna, I could fill this comment box with hahahahahahahahas at the question, "How do you account for your business activity?" I live and work on the road, so nearly all my financial information is online. There are only a few things that come by mail. My accounting method nonexistent. To top it off, I usually have multiple states to file for. CPAs don't usually have a good grasp of tax information for traveling workers, so I've been using TurboTax. I do need to at the very least start some files. Thanks for the excellent information and suggestions.

    • bravewarrior profile image
      Author

      Shauna L Bowling 4 weeks ago from Central Florida

      Chris, earning income from multiple states could certainly be tricky. Fortunately, Florida doesn't have a state income tax, but many others do and at various rates. Personally, I use H & R Block tax software. It makes it much easier to go through each module by having spreadsheets to refer to for each type of allowable deduction. I did my taxes on February 4th and had my refund in my bank account on the 13th. No muss, no fuss and no stress!

    • cam8510 profile image

      Chris Mills 4 weeks ago from Colorado Springs, CO until the end of March

      Shauna, thanks for the information about H R Block. I'll keep that in mind for next year.

    • bravewarrior profile image
      Author

      Shauna L Bowling 4 weeks ago from Central Florida

      You're welcome, Chris. I've been using their software for years and highly recommend it.

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