Tax Corner: Keeping track of income and expenses for a business

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By Neil Seidler, CPA, CMA
Dear Neil,
As a new full-timer I’ve begun operating a small business from my RV while we travel. How can I keep track of my income and expenses so I don’t just have a shoebox full of receipts to give my tax professional at income tax time?

Neil’s reply:
An organized approach to keeping track of your income and expenses will benefit you during the year, allowing you to know how you’re doing financially. It will also benefit you at tax time, making preparation of your income tax return quicker and easier. Additionally, this will save you accounting and tax preparation fees charged by your tax professional.

I would recommend that you open a separate bank account for your business. You should then deposit all income from the business into that account and pay all of your business expenses from it. That will give you a source to go to when recording your income and expenses in an accounting program or even on a simple spreadsheet. It will also provide documentation for your income and expenses.

Keep your personal and business income and expenses separate

In addition, it keep your business revenue and expenses separate from your personal income and expenses. Furthermore, it will give you a simple way of telling how your business is doing: Is the bank account balance going up or down; are you taking money for yourself from the account or are you putting your personal money into the account to pay the bills, etc.

When you take money for yourself to pay personal bills, write yourself a check, make a withdrawal, or transfer funds from that account to your personal account in order to use the funds from your business.

How to store and handle your bills

Keep all of your bills in a file folder or a filing box. Keep any bills that you paid for with cash in an envelope and reimburse yourself on a regular basis – once a week, once a month, etc.  Make sure you keep every bill for business expenses. Any that you don’t have will be lost expenses. This will result in a higher taxable income and therefore a higher tax bill.

You can use any of the basic accounting programs that are available for your computer. Or you can use a simple spreadsheet to keep track of your income and expenses. If you set up a spreadsheet, have columns for the date, description, amount received as income, amount paid for expenses, and the various income and expense categories. Enter each bill or income item on a separate line.

If you do this rather than taking a box of sales invoices and expense bills to your accountant at tax time, you’ll save on accounting charges. You will also have a better understanding of how your business is doing.

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We welcome your questions and inquiries. If you have tax-related questions, or any other questions that we may be able to address, please email us or comment below and we’ll try to answer them in a future article.

If you need assistance with your tax filings or other accounting matters please feel free to contact me. I’m happy to help. You can email me at Neil@profitprocpa.com. My business website is ProfitPro Accounting and Tax, or call my office at (702) 754-1338.

We present this material for informational purposes only. It is not intended to provide, and should not be relied on, for tax, accounting or legal advice. Therefore, readers should consult their own tax, accounting and legal advisors to discuss their own personal matters.

Read Neil’s most recent post: Use your RV for business? What expenses can you deduct?

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bull
1 month ago

EVERYONE has a cell phone. Immediately upon purchase of anything business related take a picture of the receipt with your phone and email to yourself. This way the receipt is right there when you git to your computer and very easy to import to your accounting software or ad to your own spreadsheet.

NO MORE WORRYING ABOUT RECEIPTS AND WHERE DID THEY GO!

Dan
1 month ago

Very good advice. In my case I learned to pay myself, just like an employee. Every saturday I paid myself the same amount. One more step to separating personal and business money. I also wrote down everything in a spiral note book at the end of the day. That was before computer software was so readily available, and I would do it again because I never had a spiral note book crash. Whatever you do, make sure it’s a routine that works for you and then stick with it. No such thing as “I’ll get to it later”.