Step 1: Begin Gathering DocumentsIf your fiscal year ends on the last day of December, now is the time to begin your fall income tax preparations for filing your tax returns. If you are a Really Organized Entrepreneur, you will have no trouble with this process. it is likely that you have all your receipts, and you can just print out your business checking account history as source documentation as well.
But if you are like most busy business owners, you are not perfect. Neither am I! So around this time of year I usually begin the process of gathering all my documents together in one place. I also make sure I have last year’s return where I can lay hands on it quickly.
Step 2: Summarize Income and Expenses
No matter what your record keeping style, be it a hand written record in a college-ruled school notebook, or the computer program on your laptop, now is the time to create a summary list of all of your transactions. Use this process to check for transactions you have missed entering, or entered incorrectly. When you are done, you will likely be completely caught up on your record keeping. Now, all you have to worry about is step 3.
Step 3: Keep Records Current
Now that your records have been checked, corrected, and brought current, you simply keep them current. For some people this may involve daily book keeping activities, and for others, it will be a weekly sit-down. I don’t advocate letting it go longer than weekly unless you operate a business that only has occasional transactions. If so, the transactions should be recorded and processed as they occur.
This way, at the close of business on the day that is the end of your fiscal year, you can just print things out, or do a couple of hours of hand written records to produce your profit and loss and any other statements you need for your taxes. After that, most of the tax prep battle has been won. Now it is a matter of taking things to your accountant or certified tax prep. specialist, or printing out the forms and doing them yourself.