End of Year Catch-Up: Part 1

Fall is here.  The leaves are turning, school is back in session, and you, like many owners, may be in the early stages of panic about your business finances for the year.  Happily, now is the best time, for the rest of the year, to get caught up on your records, filings, and tax payments for 2017.  Whether you are starting from absolute zero, or you have incomplete records, read on to discover the best tasks to undertake to make your tax preparer love you, come January.

Need to Track Down Income and Expenses for the Year?

Tracking and recording your business activity throughout the year is one of the most important steps to being self-employed.  If you aren’t tracking activity, how do you know if you’re doing well? How do you measure yourself?  The first step is to identify business income and expenses, and there are several methods to identifying and categorizing this activity, depending on your banking set-up. 

If you have maintained a separate bank account for your business, it should be very easy to allocate business expenses into appropriate categories.  Simply download an Excel or CSV report of all your YTD transactions, and add in notes for what each expense was, and its category.

If your business activity is, instead, tied up within personal bank accounts and credit cards, this process will be more extensive.  You will have to review all transactions, for all accounts, for the whole year to identify all the business-related activity, and then categorize transactions appropriately.

Often, the more transactions you can deduct as business expenses, the better, however it is important to be aware of common expense deduction categories– A lot of activity can be business related, but not everything.

What is the Best Way to Record Activity?

Depending on the size of your business, some record keeping options may be better than others.  For the particularly well organized, a detailed spreadsheet may be sufficient, with monthly totals for income and expense categories, and separate pages showing the transaction details.

For others, using Quickbooks, or a similar bookkeeping software may make the most sense.  For many owners with a Schedule C return, Quickbooks Simple Start or Self Employed is sufficient.  As the company grows, it is easy to upgrade into more robust software.  Keep in mind that the initial set up can take time and effort, but once it is up and running, maintaining a QBO file is simple.

What Other Records Should I Track Down?

If you can produce a detailed, and complete activity record, receipts for that activity should be your second step.  As discussed in previous posts, receipts are audit insurance for your business.  It is more difficult for an auditor to disallow a questionable transaction if a receipt is provided to back it up.  Receipts for supplies, advertising costs, travel, meals, subscriptions, etc can be annoying to track down, but are usually well worth the effort in case of an audit.

Lastly, Assets

As business owners, our operations require computers, equipment, desks, vehicles, and other large purchases, however it can be difficult sometimes to determine whether the asset should be recorded on the business’s books or not.  In the end, it comes down to the question: Who receives the benefit and utility of the item?  Purchased a laptop for email and client work, yet you use it every evening to watch Netflix?  Maybe you purchased a car to go and visit clients and job sites, but you also ferry your kids around to school, practice, or other events.  In both instances, the separation between the business and personal uses is blurry and unclear, and your tax preparer will have a more difficult time making a case for the expense.  You are better off purchasing another laptop for personal use or a separate vehicle for your family’s needs.

If you purchased a business asset, be doubly sure to keep those receipts handy – Your tax preparer will want to know the details of the transaction to record it appropriately.


Next in this series: How to Catch Up on Missed Tax Payments.