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Record-Keeping Tips for Tax Season

Shauna has been in the accounting industry for over 30 years. Her expertise has brought her repeat freelance clients come year end.

These tips will help you get through tax season without the usual pain.

These tips will help you get through tax season without the usual pain.

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

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

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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!

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

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

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).