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How To Turn Your Bookkeeping Nightmare Into A Money-Maker
For most self-employed people, bookkeeping is about as much
fun as a root canal. But like it or not, it must be done,
otherwise you'll end up overpaying your taxes big time.
Perhaps this article will help you see this tedious task
in a new light. Follow along with me and I can turn
your bookkeeping nightmare into the best paying part-time
job you ever had.
How much money do you make right now -- per hour -- at your
"regular" daytime job or in your business?
Is it $15 per hour? $25 per hour? $50 per hour? Make a
mental note of that amount, ok?
Now, let's say by "keeping the books" this month, you
are able to find $1,000 worth of deductible expenses.
Let's also assume you are in the 35% tax bracket (15%
federal income tax plus 15% self-employment tax plus
5% state tax).
So, for every $1,000 of deductions, you save yourself about
$350 in taxes ($1,000 x 35% tax rate).
One more assumption: it takes you about 2 hours to properly
record and document that $1,000 of deductions.
Hmmm. You spend 2 hours and save $350 bucks.
How much money did you just make for yourself -- per hour?
$175 per hour! Whoa -- now, compare that to how much you
make per hour working in your business or at an
employee job. Which "job" paid you more?
Even if it takes you 4 hours -- it's like having a job that
pays you $87.50 per hour. Still a pretty good hourly wage,
don't you think?
How does that make you feel about bookkeeping? Not such a
bad deal after all, is it?
With the end of the year just around the holiday corner,
here's a simple six-step bookkeeping system that will put
thousands of dollars of tax savings in your pocket and keep
the IRS out of your life.
1. Maintain a separate bank account for your business.
Never use your personal bank account for business expenses.
Having a separate bank account automatically creates the
"shell" for the perfect documentation system.
If you don't have a separate business bank account, now
is the time to get one.
2. Maintain a separate credit card account for your
business. Same deal as the bank account -- pick one credit
card that you use exclusively for business expenses.
3. These 2 accounts (one bank account and one credit card
account) should only be used for business! Never "co-mingle"
business and personal financial information.
The only income that goes into your business bank account
is business income. The only expenses that are paid from
the business bank account and business credit card account
are business expenses.
4. For each major income and expense category, create a
simple filing system each calendar year -- one file folder
for each major category. Every time you write a
check or use the credit card for a business expense,
you assign that expense to the appropriate expense category
and file the supporting documentation (receipt, invoice,
cancelled check, or whatever) into the corresponding
file
folder.
5. Keep a separate file folder for all monthly bank account
statements and credit card statements.
6. Use a simple bookkeeping software program like
InternetTaxHelper to record all deposits, checks, and credit
card charges. Once a week or once a month,
input all transactions into InternetTaxHelper and assign
each transaction to the appropriate income or expense
category.
The importance of this "categorization" process cannot
be stressed enough -- it's the key to the whole system!
There are any number of software programs out there
for this purpose. I've used them all: Quicken, Quickbooks,
Money, etc. Spreadsheet programs like Excel can also be used
to automate business record-keeping.
But my favorite bookkeeping program for the Small Business
Owner or Self-Employed Person is InternetTaxHelper -- it is
by far the easiest to learn and simplest to use. If your
business grows, you can always invest in a more
sophisticated program later. For any small business owner,
especially if you're just starting out, this is the best
program I've ever seen.
Using a software program like InternetTaxHelper is a
tremendous time-saver. Once you've input all your
individual income and expense transactions, and assuming
you've assigned each transaction to the appropriate category
and filed the paperwork, you've already completed all
the work necessary to audit-proof your income tax return!
For more information on InternetTaxHelper, go to:
http://www.internettaxhelper.com/g.o/wmdctp
One final comment: If you aren't "computer-savvy", that's
OK. You can still use good ole pencil and paper to
categorize your business expenses.
I have clients who use nothing more sophisticated than a
spiral notebook. Each year they buy a new notebook and
label each page with a particular income or expense
category.
Every transaction gets written down in the notebook on
the appropriate page. At the end of the year, they add
up the totals for each page, and presto, they give me an
annual recap of all major income and expense categories.
Get the picture? It doesn't have to be fancy. It just has
to be in writing, accurate, and supported by actual
paper documents.
Whether you use your computer or not, the end result is the
same: Every single transaction has been assigned to the
appropriate category, and every transaction has the
corresponding "paper trail" -- every receipt, invoice,
cancelled check and credit card charge has been
filed into the appropriate file folder. Should the
IRS question any income or expense amount on your return,
you'll be ready!
About the Author
Wayne M. Davies is author of the best-selling eBook,
"The Tax Reduction Toolkit: 29 Little-Known Legal Loopholes
That Will Reduce Your Taxes By Thousands
(For Small Business Owners and Self-Employed People Only!)
Don't file another tax return until you visit:
http://www.YouSaveOnTaxes.com/toolkit
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