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, and saving 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 that account. It will give you a source to go to when recording your income and expenses in an accounting program or even on a simple spreadsheet, and it will provide documentation for your income and expenses. It will also keep your business revenue and expenses separate from your personal income and expenses and 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.

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, as any that you don’t have will be lost expenses and 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 as well as having a better understanding of how your business is doing.

If you have any other questions or need help in getting set up, send me an email and I’ll be happy to assist you.

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. You can email me at TheRVTaxGuy@gmail.com .

The material presented here is for informational purposes only and is not intended to
provide, and should not be relied on for tax, accounting or legal advice. Readers should
consult their own tax, accounting, and legal advisors to discuss their own personal
matters.

Neil Seidler, CPA, CMA, has served businesses and individuals across the USA and Canada for 35 years. As an avid RVer and recent full-timer he has a unique perspective on RV tax issues.

Read Neil’s previous posts here.

##RVT924

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Paul Goldberg

Simplfy, I hate paper files, they are subject to being lost, and occupy substantial space in an RV. ALL DOCUMENTS are scanned and filed in appropriate folders, both on my computer and online (I use Google Drive). Once I have verified they are safely stored the paper is marked as scanned and the next time I am at a shredder (or have a campfire) they are destroyed. Although separate bank accounts also work, simply using an accounting package such as Quicken or a spread sheet to allocate all transactions between personal and business will work as well. For years, even before RVing, I ran my personal business through our joint checking account. I am a bit OCD about categorizing all transactions as they post. A simple sort at tax time – or whenever I need to see where I am, pulls up immediate results. I did have multiple checking accounts, but found that there was little benefit and extra bank charges associated with that route.