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How To Organize My Small Business - Tax Files

14-03-2018

How to organize my small business - tax edition!  

The arrival of spring means flowering trees, promises of fresh produce, images of lazy days at the pool. 

And taxes. 

If you are a small business owner/entrepreneur/boss lady/big business owner, then you know that tax time is a little more involved than just typing in www dot hrblock dot com

I've had many a conversation with friends & organizing clients alike about how they organize and manage their business finances.  Between the shoulder shrugs & the expression of sheer fear, I realized this is an area of importance (hello deductions) but also confusion. 

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Q: WHAT SHOULD I KEEP FOR TAX PURPOSES?

A: You should keep bills & receipts from anything that goes on your tax return (income & expenses). 

If you are a home based business & a portion of your home is dedicated to your office (& you take Business Use of Home deductions), then you will need to keep the following:

  • Mortgage/rent statements
  • Power/water/natural gas bills
  • Internet
  • Phone

If your car is registered as a company vehicle, then you will need to keep the following:

  • Monthly statements from your creditor
  • Fuel receipts
  • Car repair receipts
  • Insurance statements

If you take the mileage reimbursement, then you only need to track your mileage to & fro on business related "trips".

If you have employees or subcontractors, then you will need to keep the following:

  • Time sheets
  • Payroll/payments
  • 1099
  • 1096
  • W4
  • Payroll related payments

Store & organize statements in your filing cabinet utilizing file folders.  

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Ditch the manilla folders (just one extra step) & don't get too caught up in color coding and placement of tabs in the file drawer.  That will be OCD level 2.0.  

Also, you will need to keep all receipts for purchases/expenses that are written off on your tax return. 

  • Meals & entertainment
  • Postage
  • Advertising (facebook promotions, website hosting)
  • Business insurance statements
  • Office expenses
  • ....and the like

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Throughout the year, store & organize your receipts in a 13 pocket accordian receipt organizer (check size). Organize them by month.  If you need to locate a receipt for a return, then check your records for the month that you purchased then go to the organizer to retrieve. 

Keep personal receipts (the ones that you don't intend to write off) in a separate organizer. 

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As for income, keep all invoices that were paid to the business for each tax year.  I keep invoices in client folders for 2-3 years before purging.  At which time, I remove the invoice and store with the corresponding tax year. 

Q: DO I KEEP ALL OF THIS STUFF YEAR AFTER YEAR IN A FILING CABINET?

A: At the end of each year, remove all of your statements & receipts.  You will start the year fresh with empty folders. 

Keep statements separated by storing in sheet protectors. 

Keep receipts together by month if you prefer, in sheet protectors or large mailing envelopes.  

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Q: NOW WHAT?

A: Store your supporting documentation with your tax return. 

Create a new folder system (or folders): 

  • 2017 Taxes (supporting documents, may be 2 or more folders)
  • 2017 Tax Return 

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Q: WHAT GOES IN THE TAX RETURN FOLDER?

A: Your tax return & other tax related documents. 

  • 1096 (copy of form that you mailed to IRS)
  • 1099 (copies of forms that you mailed to subcontractors)
  • 1099 (you may have received a 1099 from a client/business that you performed work for)
  • 1098-E (student loan interest) (for personal return)
  • 1099-K (if you accept payments via credit cards)
  • 1099-INT (interest income statements)
  • 1095-B (health insurance coverage)
  • Qtrly Payment Vouchers 
  • Year End Report (this is what the accountant will use to prepare your tax return)

Q: WHAT IS THE RULE ON KEEPING RETURNS? 

A: You will find caveats in all tax law, but the general rule that I follow is you must keep the return & all supporting documents for 7 years. 

After 7 years, you may discard the supporting documents, but you must keep the return indefinitely. 

For year 2018, you would keep the following years returns + supporting:

  • 2017
  • 2016
  • 2015
  • 2014
  • 2013
  • 2012
  • 2011

2010 and beyond would be returns only. 

Q: HOW DO I KEEP ALL THESE RETURNS?

A: I keep the 7 "active" years in my filing cabinet.  I refer to the last two years often for business related purposes (applying for a Line Of Credit) & personal reasons (applying for a mortgage). 

Each year I move the oldest tax return to my storage container, and shred the supporting documents. 

For 2018, I will move 2010 tax return out of the filing cabinet, into the "Tax" container, and discard the rest. 

I store the tax container in my office, but you can store in a closet, the garage, the basement, the where ever you have room but can access if needed.  

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Happy tax file organizing!  

NOTE: I am not a licensed accountant, my advice is based on research, my organizing expertise, and personal preference.  If you have specific questions, then I recommend you contact your CPA.

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Until next time...

lovejennifer