The single biggest mistake most taxpayers do is ignore keeping their records up to date. This applies to both business owners and individual taxpayers.
Why is this done? This is very easy to answer. Because the answer is always “I have plenty of time and will get to it later”. I really do understand this. For businesses, they have to make sure the rent and utilities are paid, their labor shows up and gets their work done on time, dealing with vendors, collecting past due bills–the list goes on and on. For individuals, all of life’s issues get in the way. And with each one of these things, keeping your records up to date drops down the to-do list one item at a time and eventually becomes a very time intensive task or insurmountable.
The answer to this is actually relatively simple–schedule time each week for this on your calendar, and do not reschedule except for something catastrophic. Yes, it may seem that everything else is an emergency or urgent, but is it really more urgent than managing your finances?
Here are five tips for you to implement immediately:
- Keep all your receipts. Put them in a folder and then once a month file or scan them into something like Evernote or Dropbox. An even better idea that I have adopted lately is to take a picture of them with my phone DAILY and upload them to my accounting program so it becomes the supporting document for the transaction. For self-employed individuals, there is a great app that lets you take the picture and swipe one way for business the other way for personal. It does not get any easier than this! After you do one of the above, shred it and forget it!
- Reconcile bank accounts regularly. I used to recommend to do this monthly when your statements come in to make sure something was not paid out of your bank account that is not yours. But now, this should be done weekly or even daily due to the rise in identity theft and fraudulent electronic transactions. This can be done in just a few minutes a day and saves hours at the end of the month. See Tip #4 below for more about this.
- Follow up unpaid invoices. There is no worse feeling than working hard for a customer then waiting for your money or even worse, not getting paid. The time you are saving on the first two tasks allows enough time to do this one. Contact your customers the day the invoice is due to remind them. Another possibility is to consider revising your billing practices–get deposits, tighten credit terms or offer products and services on a COD basis.
- Keep books up to date. If you implement the three tips above, you are well on your way of having up-to-date information to help manage your finances and to make business and personal decisions. Modern accounting software can be trained to recognize transactions and to suggest how to record them, so doing this daily becomes extremely efficient and, yes, maybe even fun!
- Put money aside for tax. You knew I had to include this one. One of the single biggest mistakes I see is for hard-working people to use whatever cash flow they have and then to be “surprised” that they owe a large amount of taxes. There is a very simple solution. Every time you make a deposit, take some of it and immediately transfer it to a tax savings account so that you can create your own “pay as you go” plan to never owe money again on 4/15.
Adopted From: Bookkeeping Tips from Sarina, Festival Bookkeeping, 1/16/16