Organizing your financial paperwork for year-end tax purposes

Make bookkeeping a breeze by maintaining well-organized documentation of your business’s expenses. Then, in the event the government decides to audit you, you’ll be prepared to provide the required documents without stressing about where to find them.

What does the IRS require for documentation?

You can find out everything you need to know about record-keeping for tax purposes in the IRS Publication 583. Here’s the gist:

If you don’t have a receipt for an expense, then technically you shouldn’t deduct it for tax purposes. Providing a bank statement with the purchase listed alone is not good enough to consider it a deduction. Here’s some guidance from the IRS on this issue:

IRS bottom line is: you need to hold onto your expense receipts and keep them on file for a minimum of three years.

We suggest getting organized with the following:

1. Setting Up a Physical File System to Organize your Financial Documents

Get yourself 12 file folders (don't forget to label them) and divvy up your documentation by month.

Once you've got your documents organized by month, group together documents that belong to the same expense category, i.e., office expense, rent receipts, utility payments, etc.

Finally, print out your bank statement for each month and place it in the corresponding folder for easy entry and reconciliation.

2. Create a Virtual File Folder System for Digital Documents

Create a similar system on your PC, but go one step further and create subfolders for each expense category. Print PDF’s of email receipts that you need to save; there are numerous apps available that will help with this organization.

Now that you have your documents organized for the upcoming tax year, don’t stop there!

Setup another system for the current year and practice organizing your documents all year long.

#organization #IRSguidelines #taxpurposes #jdr