- 1). ~Keep Track of Receipts~
Whether you are self-employed as a sole proprietor or a small business owner with employees, you will have expenses. Each time you buy an item or service for your business, keep the receipt.
Start a simple filing system to ensure you'll have the receipts come tax time. An accordion file, a file folder with accordion-style sides, works well because the paper won't fall out the sides. Or use a box. What's important is to have one set location where you can place your receipts until you are ready to deal with them. - 2). ~Know What Expenses are Deductible~
To write off business expenses on taxes, know what is deductible so you are sure to write off what is legal. Categories of items that are deductible include the following:
- office equipment, which includes computers, printers, fax machines, cash registers, telephones, etc.
- supplies, which includes computer paper, fax paper, printer ink, pens, staplers, for instance
- Internet access/telephone service--check with a tax preparer to verify if you can deduct the percentage of these monthly service bills that you use for business
- postage for business-related mailings
- subscriptions, which could include newspapers or magazines you use to stay informed about your industry or online software/services to download to keep a business device current, for example
- miscellaneous expenses, which may include medical expenses such as health insurance, doctor and dental bills, prescriptions; tax preparation fees; cleaning or landscaping service fees, etc. - 3). ~Enter the Expenses in a Ledger~
As you spend money on business expenses, gather the receipts daily or weekly, if possible, and enter them in a ledger. This can be as simple as writing them in a notebook, typing them in a spreadsheet, or using a more sophisticated business expense software program.
Whatever you use, stay current with the task of entering expenses into your ledger or you may end up at the end of the year with a huge job on your hands.
After you enter the receipts into your ledger of choice, make a small slash mark somewhere on the receipt, such as on the top right corner. Mark the same spot on each receipt to indicate you have already accounted for that expense. Then clip these receipts together by month so there is no confusion that you have already entered them. - 4
Make tax time palatable and be prepared.
~Prepare Your Tax Return~
At tax preparation time, the bottom line is this:
How much did you make (income)?
and
How much did you spend making it (expenses)?
Prepare your taxes yourself or hire a tax professional, but be sure to write off all of your business expenses to ensure you keep the income that is rightfully yours.
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