Ohhhh my husband. It is safe to say that he has an obsession with all things gadgety. Seriously, what is that....a guy thing?? Or if obsession is too strong of a word, let's just say a highly heightened sense of appreciation...for all things gadgety. Put it this way, he's the kind of guy you don't want to let get too close to the Sky Mall catalog. Because before you know it, he'll be outside wearing his neck massager, setting up our backyard blowup drive-in movie screen, all while wearing those boots with the nails in the bottom to aerate our lawn.
It wouldn't be pretty.
So when he told me he wanted to get this new contraption to manage all of our receipts I thought heeeeere we go. I'll be honest with you, the thing looked more like it was about to shred all our receipts than record them. And it was going to cost about $200. Money that I could've spent on shoes. :) So, I was a skeptic to say the least. But the second it arrived on our door step and Justin started playing around with it, I realized this was not just a gadget.
It had been sent directly down from the technology gods to save us. Seriously. And then a band of angels started to sing. It was awesome. :)
This is our new Neat Receipts set up. Basically what it can do, is take all the chaos you see on the left and scan it all in digitally. The technology is actually quite incredible. It can recognize store names, amounts, etc and it all auto-populates in the record fields. Which you can add to or change. You can create categories, write notes, run reports.
It's pretty much the best thing since someone put nails in the bottom of boots. :)
Since I know that it is around this time of year that people start dreading tax time, we thought we'd put together this Pancake Session for you today all about keeping good records. In order for the IRS to recognize you as a business and allow you to continue writing off business deductions, they have a few things that they're looking for to see if you are running your business in a "business like manner." One of which, is keeping good books. And the reason this is important and why you should care, is that if they ever determine you are not running your business like a business then they'll deem you a hobby. And then all of those deductions you took over the past few years will be due back, plus penalties & interest. I know it can be scary stuff. So, here are a few tips to make it a little less overwhelming.
1. Separation of Business & Personal For the purposes of keeping good books, it is absolutely paramount that you have a business account where you make business purchases only. That means not making any personal purchases on the business account, but also not running occasional business charges through your personal account here and there. The IRS wants to see an absolute separation of those two worlds, if they are going to give you the benefit of making deductions for business purposes. In order to set up a business account at your local bank, you'll need articles of incorporation or at the very least a "doing business as" document from the town/county/state clerk where you live. (This will depend on the state you're in....Connecticut, for example is through the town clerk.)
2. Record it right then. If we're out to dinner with clients and we pick up the bill, we write at the top of the receipt right then who it was and what it was for: Sarah & John, post-Get to Know You shoot dinner. Because what we've realized, is that as much as we think we'll remember....chances are, a year from now we'll forget. And the IRS wants specifics. This same rule, "record it right then" also applies to just dealing with receipts in general. Our protocol when we first got started *used* to be just throwing them all in a plastic tub from Staples and then hiding it under a desk until April 14th rolled around. Where we would then try to deal with it all at once. Needless to say, it was a terrible, stressful system. Besides that, the IRS actually wants to see you keeping ongoing books, putting out a profit & loss statement, on a monthly basis. So to stay ahead of the monster, each month we start a new manilla folder for that month's receipts so they're all in one place. And then at the end of the month, they're already in an envelope and ready to ship out to our bookkeeper. With the addition of Neat Receipts, the plan is for Justin to just input the receipts as we acquire them. That way we never have to worry about missing any, and we can make sure it doesn't get out of control like that picture you see above. Which we all know, can happen so quickly.
3. Back it up. Obviously, with us using a new digital system for our receipts we're going to want to make sure that we back up those records often on a hard drive, because we would hate to lose everything. But for the time being, we'll also be keeping our paper receipts in case there is ever any question. Depending on the circumstances, the IRS has between 3, 6 and unlimited number of years (reserved for fraudulent or unfiled returns) to inspect your records. So it's a good idea to keep them organized. For example, our receipt records are organized by year and then broken down by the deduction category (meals, travel, etc) they fall under, with each one getting its own folder. We also include our monthly profit & loss statement from our bookkeeper, the monthly statement for our business account, and copies of the tax forms filed by our accountant for that year. And everything for that year then goes together, organized in its own bin. So at any moment, we always have it at our fingertips.
I hope that helped!! If you have any questions, feel free to leave 'em in the comments below!
Happy Pancake Day!