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