For business owners and freelancers facing the new year, creating a highly detailed and excruciatingly organized system for organizing tax-related info from this year may not be the first thing on your mind. But you’d be wise to cobble together at least a simple way of collecting and storing the many bits and pieces of info you’ll need when it comes time to prepare your return to minimize the chances of hitting early April and having a total freak-out.
So if you do nothing else in the coming weeks, tackle these tasks:
Create a tax info organizing system of some sort. If most or all of your tax-related info (such as bank statements, credit card statements, receipts, and the like) is in paper form, go for file folders, an accordion file, or even a giant envelope–any container large enough to hold all of the 2011 records you’ll need. If you’ve got info stored electronically, create at least one basic folder (“2011 Taxes,” say) on your computer, and stick it on your desktop if you think you’re likely to forget about it.
Gather stuff up. Once you’ve got a place to store your tax-related info, go through your files, piles, drawers, and what-have-you to gather into it the documents you need. As new stuff arrives (think 1099s, end-of-year summaries, mysterious forms from the IRS), add it to the mix.
Deal with your receipts. Tax deductions can be a huge boon for business owners, but first you need to figure out what you actually spent on your business and what all you can deduct. (the IRS doesn’t so much want you to guesstimate, and especially not without some sort of documentation to back up said guess.) This means, yes, it’s time to deal with that wad of business expense receipts. If you work with a tax preparer, he or she can tell you the best way to sort these suckers–by month, by quarter, by expense type, etc. If you’ll be doing much (or all) of your tax prep yourself, consider sorting receipts by expense type, using the same categories you’ll use on your Schedule C. Really, really hate the prospect of having to sort and organize all those little slips of paper? Now is the perfect time to hire someone to help you through the task.
Calculate your mileage. If you’ll be taking a business-related driving deduction, save yourself some anguish and calculate your mileage now. Been using a mileage log? You have little but some
simple addition ahead of you. Been maybe a little lax in the tracking department? Use Google Maps or the like to determine the distance you’ve been traveling, and consider creating a basic spreadsheet to tally up your miles.
Figure out your 2011 business income. Finally, we turn to that little thing called income, a.k.a. the purpose of your business in the first place. The ways of determining your total 2011 business income are as varied as the ways of billing your clients and customers, so there’s not one method that will work for everyone. Whether you run a report in your bookkeeping program, do a final tally in the spreadsheet you’ve been using, or do some good old-fashioned calculator-based addition if you’ve been invoicing clients on paper, figuring out your final number now means one less things to deal with later
A list of common deductible business expenses follows. You’ll likely have expenses that are not on this list. If they are ordinary and necessary for your business and you have the appropriate back-up materials (i.e. receipts and/or canceled checks), they are deductible:
• Accounting and bookkeeping fees
• Bank service charges (If you have only one bank account, these fees must be prorated between business and personal use.)
• Car and truck expenses
- 51 cents per mile for business miles driven
- 19 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
• Computer supplies and software
• Conferences and seminars you’ve attended
• Contract labor, including subcontractors and consultants
• Credit card annual fees for cards used in your business (as with bank charges, these fees will need to be pro-rated if you use the same card for business and personal expenses.)
• Education related to your business (but not to enter a new occupation)
• Entertainment and business meals (these are 50% deductible)
• Equipment, including computers
• Furniture for your office or home office
• Gifts to business associates (up to $25 per person per year is deductible)
• Home office expenses (To qualify for the deduction, you must have a space that’s used regularly and exclusively for your business)
• Insurance (liability, malpractice, etc. but not disability.)
• Interest on business credit cards and loans (like bank charges, these fees may need to be pro-rated)
• Legal and professional fees, including costs for preparing the business portion of your tax return
• Licenses and fees
• Magazines and books that you need for your business
• Maintenance and repairs on equipment and office/store space
• Office supplies
• Online fees (these need to be pro-rated between business and personal use)
• Payroll taxes paid on behalf of your employees (not the portion withheld from their paychecks)
• Printing and copying
• Rent of equipment or store/office space
• Small furnishings and equipment
• Small tools
• Telephone (You can deduct long distance business calls made from home even if you don’t qualify for an office-in-home. Monthly service charges on a home phone are deductible only if you have more than one phone line.)
• Uniforms or special work clothing (e.g. steel toed boots or coveralls)
• Wages paid to employees
© Jan Zobel 2010
Jan Zobel is a Bay Area tax professional (enrolled agent) who specializes in working with self-employed people. She is the author of Minding Her Own Business: the Self-Employed Woman’s Guide to Taxes and Recordkeeping.