Spring Cleaning: Get Your Finances in Order

By Features Business on Main

It’s an iconic image of American small business — a shoebox filled with receipts and sales records, handed off each spring to an accountant who then translates the contents into a coherent tax return.

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Iconic, perhaps, but also passé.

Unless you’re running a lemonade stand in front of your parents’ house, it’s time to shelve the shoebox. At the very least, stop giving it to your accountant. By applying just a little extra effort to your bookkeeping activities, you can make the burden on your accountant lighter, and his or her annual bill to you smaller. What’s more, you’ll have year-round access to better and more timely information about how your business is performing, enabling faster and better decision-making — no matter the season.

“Don’t think of tax compliance as a necessary evil that happens once a year,” says Cecily Welch, a certified public accountant and senior tax manager for S.J. Gorowitz Accounting & Tax Services in Alpharetta, Georgia. “Accurate and timely information helps you run your business. Getting the tax compliance piece done quickly and at a reasonable cost is a happy by-product.”

If you’ve been sweating this year’s tax-filing season, start planning now to make it easier next year:

- Get physically organized. “Organize your tax and financial documents in a neat, logical format so you can easily locate relevant documents when it’s time to file your taxes, for example by type (e.g., expenses) and then by date,” says Jessi Dolmage, a spokeswoman for online tax preparation and filing service TaxACT. If your tax preparer doesn’t offer you an organizer, you can buy one at any office supply store. Or go electronic: Scan your documents, organize them on your computer, and toss the hard copies.

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- Embrace accounting software, such as QuickBooks or Sage 50 (formerly Peachtree), to track income and expenses. At tax time, you can print out a profit-and-loss statement for your accountant with your information neatly categorized, or simply share a data file with him or her. If spending a couple hundred bucks on accounting software isn’t in the cards, try logging income and expenses on a simple spreadsheet. Even that will help your accountant prepare your filings faster and cheaper, says Senen Garcia, an attorney in Coconut Grove, Florida.

- Create a workable chart of accounts. A chart of accounts is a list of your company’s bank and credit card accounts, assets, liabilities, and income and expense categories. Setting one up is useful whether you’re using accounting software or stuffing receipts and records into envelopes. Greg Jones, CEO of BookKeeping Express, a bookkeeping franchisor, suggests determining which expense categories to track by looking at which ones you report on your tax return, such as on Schedule C if you’re a sole proprietor.

- Maintain separate business and personal accounts. With separate bank and credit card accounts for your business and personal life, you’ll not only be able to track income and expenses more easily, you’ll make it easier to document your business activities if the Internal Revenue Service questions your accounting.

- Update your books daily or weekly. By updating income and expenses frequently, you’ll always have a current snapshot of your company’s financial health, which can be invaluable for making business decisions. You’ll also eliminate the hassle of pulling together months of data at tax time.

- Use a petty-cash box. To gain control of small purchases that can add up to big expenses — but perhaps get overlooked — Jones recommends setting up a petty-cash box. Put in, say, $100. Pay for small purchases with that cash, replacing each withdrawal with a receipt. When the cash is gone, replenish the box by writing a check to cash, and then expense all the receipts.

- Save your receipts. So maybe you can use that shoebox after all — but simply as a storage container for receipts and related documents that you’d need to produce in the event of an IRS audit. “You want to hold on to your employment tax records for at least four years after the tax becomes due or is paid,” says Dolmage. “You’ll want to hold on to other paper and electronic financial records as well.” To rid yourself of the shoebox permanently, consider scanning and storing your documents electronically.

- Hire a bookkeeper. Consider employing a bookkeeper or bookkeeping service, if only part time, to organize and track income and expenses. “When it’s time to hand over the books to a tax accountant, they will be in such good shape the accountant will have a lot less work to do, and that will save your business money,” says Pat Valdata, a spokeswoman for OnPoint Partners, a business consulting and services firm in Wilmington, Delaware.

Sure, some of these tips can cost you money up front, just like adding daily bookkeeping to your to-do list can cost you time up front. But when tax season rolls around again, you’ll be thanking yourself for getting organized. In this game, it really is pay now or pay later.

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