This is the time of year that I get all excited about paperwork. Weird right? There is something cathartic about cleaning out the files of last years receipts and starting fresh. Starting January 1st, I can wrap up the year, organize the receipts, start planning the 2010 tax return and looking forward to the business that lies ahead.
Here is how I do it. Back when I was a sole proprietor, I would file a Schedule C at the end of the year to show profit (ideally) and loss. I am incorporated now, so I traded in the easy to file Schedule C and SE for the infinitely more complicated 1120. First thing I did was to take a Schedule C, and transfer all the categories from the expenses section of the form (Part II) over to the tabs on a set of hanging folders. That way, my files would exactly match the Schedule C. Then throughout the year, whenever I got a deductible receipt, I would record it in my book keeping software (Quickbooks, ACT, Peachtree, Quicken etc.) and then throw the receipt into the appropriate folder. After the first year, you can assess the folders and see if you may need to make some changes. For example, you may have no depletion expenses but might wish you had a folder for postage and shipping. In addition to the expenses from Section II of the Schedule C, you may want to create folders for check stubs, credit card bills, other vendors etc. At the end of the year, all my travel expense receipts were in the travel expenses folder etc.
So now, as I sit here on January 2nd, I take all the receipts from each of the folders and put them into a manila folder labeled 2010 Advertising Expense etc. and then group all the folders together into a bankers box labeled 2010. Once your tax return is done, you can put a copy of it in the bankers box with the receipts and voila, you will have your year all organized and in one place.
You will thank me years from now when you have to go back through your previous years returns to find a particular receipt to file a warranty claim or heaven forbid, you get audited!
Happy new year!
