For most self-employed people, bookkeeping is about as much fun as a root canal. But like it or not, it must be done, otherwise you'll end up overpaying your taxes big time.Perhaps this article will help you see this tedious task in a new light. Follow along with me and I can turn your bookkeeping nightmare into
best paying part-time job you ever had.
How much money do you make right now -- per hour -- at your "regular" daytime job or in your business?
Is it $15 per hour? $25 per hour? $50 per hour? Make a mental note of that amount, ok?
Now, let's say by "keeping books" this month, you are able to find $1,000 worth of deductible expenses.
Let's also assume you are in 35% tax bracket (15% federal income tax plus 15% self-employment tax plus 5% state tax).
So, for every $1,000 of deductions, you save yourself about $350 in taxes ($1,000 x 35% tax rate).
One more assumption: it takes you about 2 hours to properly record and document that $1,000 of deductions.
Hmmm. You spend 2 hours and save $350 bucks.
How much money did you just make for yourself -- per hour?
$175 per hour! Whoa -- now, compare that to how much you make per hour working in your business or at an employee job. Which "job" paid you more?
Even if it takes you 4 hours -- it's like having a job that pays you $87.50 per hour. Still a pretty good hourly wage, don't you think?
How does that make you feel about bookkeeping? Not such a bad deal after all, is it?
With end of year just around holiday corner, here's a simple six-step bookkeeping system that will put thousands of dollars of tax savings in your pocket and keep IRS out of your life.
1. Maintain a separate bank account for your business. Never use your personal bank account for business expenses. Having a separate bank account automatically creates "shell" for perfect documentation system.
If you don't have a separate business bank account, now is time to get one.
2. Maintain a separate credit card account for your business. Same deal as bank account -- pick one credit card that you use exclusively for business expenses. 3. These 2 accounts (one bank account and one credit card account) should only be used for business! Never "co-mingle" business and personal financial information.
The only income that goes into your business bank account is business income. The only expenses that are paid from business bank account and business credit card account are business expenses.
4. For each major income and expense category, create a simple filing system each calendar year -- one file folder for each major category. Every time you write a check or use credit card for a business expense, you assign that expense to appropriate expense category and file supporting documentation (receipt, invoice, cancelled check, or whatever) into corresponding file folder.
