This podcast discusses why it is important to keep track of income and expenses. Debby also covers some tips to get you started.
WHY IS IT IMPORTANT TO KEEP TRACK OF THESE?
- In order to properly file a tax return, you need to track your income and expenses to complete the tax forms. These items make up your Profit and Loss statement.
HOW DO I START? WHAT TOOLS DO I NEED?
- Accounting software or a good excel spreadsheet is the best way to track your income and expenses. I prefer QuickBooks software.
- If you are using software, making sure you have it set up properly is key. A few dollars up front for set up and some training is worth it versus having your accountant to “fix” things at tax time. This can get costly.
- If you are using a spreadsheet, ask your accountant which categories you should be tracking based on your industry. You can also find various spreadsheets on-line by googling Accounting Spreadsheet.
WON’T MY ACCOUNTANT BE ABLE TO GET THIS INFORMATION FROM MY CHECKING ACCOUNT?
- Yes, but if you have it organized for your accountant, it will take much less time for them to prepare your tax return which may mean a smaller bill. Bringing in a shoebox full of receipts at tax time is an accountant’s nightmare, and yes, this actually does happen. If you’re not using software or a spreadsheet, you can manually track your expenses. Take a notebook and make separate columns for “Office Expenses”, “Meals”, “Supplies”, “Auto Expense”, and any other expenses that you have. Then go through your receipts and list each expense in the appropriate column.
- You will also need a column or separate page for the income you’ve generated where you will list all of your receipts for the year.
WHAT ABOUT PEOPLE THAT OWE ME MONEY THAT I HAVEN’T COLLECTED AT THE END OF THE YEAR?
- Excellent question! There are 2 different types of accounting for tax purposes – Cash and Accrual.
- If you are on the cash basis of accounting, you will NOT include the money owed to you at the end of the year in your income.
- If you are on the accrual basis of accounting, you WILL include the money people owe you in your income. You will also include any expenses that you have that you have not paid yet at the end of the year.
- We will discuss this a little further when we talk about Financial Statements on August 18th.
Be sure to talk to a tax professional if you have any questions about tracking income and expenses.
I manage tax return preparation, review, and audits for businesses, individuals, and nonprofits. I also handle financial statements and provide accounting and payroll services to various industries. Additionally, I serve on the Firm's Estate and Trust Planning and Community Service Day Committees.
