KEEPING TAX RECORDS ORGANIZED
By Lisa Baldridge, Newborn Care Specialist/Sleep Coach and owner of Nanny for Newborns, LLC
This past January, I read Facebook posts from at least three newborn care specialists who were lamenting the time it took to organize their business expenses and receipts. I was one of those people. You would think that after eight years of being a business owner, I would have perfected some type of organizational method by now. And I have! Finally!
I had gotten good at saving most of my receipts, but not so good at keeping them in one place, much less one organized place. I had a few in my wallet, most stacked in a cubby in my desk, and some in the first two sections of whatever divided file-type container I had bought and sworn to use back in January. And then there were the floaters. You know, the receipt that you found crumpled up in the bottom of an unused purse, the stray gas receipts you forgot were in your car, the few you shoved in a drawer when you were doing a quick clean-up because someone was dropping by in five minutes.
Now that half of 2012 is behind us, I can officially say that I have a new method of managing my tax records. And it is working for me.
First, I will address the taxes themselves. My best advice is to stay ahead of it. Don’t wait until you file your taxes and learn that you owe money to the IRS. If you are in business for yourself, you will owe taxes. What works for me is to immediately remove a percentage of my earnings into a special savings account I call “taxes” as soon as a client pays me. The amount you will need to save depends upon many variables, but as a guideline, I recommend somewhere between 25% and 40%. That’s a big chunk! That means that if you are charging (or grossing) $20 an hour, you are only taking home (or netting) somewhere between about $14 and $12. Yikes! But before you feel too badly about that, keep in mind that everyone experiences this. A nanny who grosses, say, $30,000 a year only nets (brings home) somewhere around $24,000. I have to pay taxes quarterly, so by saving a percentage out of each check, I have the money when the tax man comes around. What an enormous relief!
Now I will address that daunting task of keeping receipts organized. This past January (like every other January), I purchased an accordion-style file folder with 13 sections. You can name your sections whatever you like, but here are mine: CAR; CHARITY; CLIENT GIFTS; FOOD; HOTEL; LEGAL & TAXES; MEDICAL; OFFICE SUPPLIES; POSTAGE; TRAVEL & BUSINESS SUPPLIES; BANK; UTILITIES; CREDIT CARDS.
In my wallet, I keep every receipt I’m ever given for anything. Once a week or so, I gather those receipts and place the business-related ones into their respective section. And when my household bills and credit card statements come, I grab a highlighter and get to work. On bills, I highlight the month and the amount that it is due. On credit card statements, I do the same, but I also review each purchase line by line; and I highlight all of the business-related expenses and then mark its category beside it. The category names match the categories in my accordion file. Once each purchase is assigned a category, I add up the total of purchases for each category for that month and write it on the statement. My credit card companies do this for me, but I prefer to use my own category names. As a side note, I will add that reviewing my credit card and bank statements each month has been very illuminating. Just in the first six months of this year, I have discovered two illicit charges and one fee that I was able to have credited back to me, simply by asking.
I have an accountant who prepares my taxes each year. However, even if you have an accountant, you still need to be organized with your records. He or she will be less than pleased – and you will be charged more – if you show up at his or her office with your receipts in a shoe box. So, each month, I also go through each file section of the accordion folder and staple together then write the total amount of each item: GAS-$257; FOOD-$138; OFFICE SUPPLIES-$173. You get the idea.
When next January rolls around, I will just reach into the “CAR” section, pull out all of the stapled-together and totaled-up receipts and add them up. Then I will do the same for all of the other sections. I estimate that getting my tax receipts and paperwork organized for my accountant will take me one hour, instead of the 12 hours it took last year. I wonder what I will do with all that extra time?