It occurred to me the other day that while I’ve been doing this business thing for over a year now, I haven’t shared a whole lot of things I’ve learned along the way… and boy, are there a TON. When I first started freelancing, I thought I’d do it as a side gig to keep me employed until something bigger and better came along, but it quickly evolved into a full-on business. Fortunately (or unfortunately, depending on what the topic is), there has been a huge learning curve for me — as with many first time entrepreneurs — because there’s so much more to being self-employed than just doing your work/selling a product and getting paid.
My first business tip (well, tips) for you are pretty timely, since tax day is RAPIDLY approaching and I’m knee-deep in doing my own. Today, I’m all about organizing your expenses. Sounds dull, but expenses can be a great tax deduction… if you keep track of them. Otherwise, they’re just a messy pile of bills, receipts, emails, and invoices that you have to deal with at the end of the year/quarter, and you’re sure to mix things up or be pulling your hair out at the chaos (can you tell I’m speaking from experience?)
1. Figure out a system
Herein lies my biggest source of problems: no consistent system. I just let receipts pile up, had random charges and paypal expenses, plus trips for meetings (yes, you can write off your mileage!) penned into my calendar. So the first thing to do is pick a system that works for you. I use a hybrid: for paper receipts that I haven’t entered into an expensing app (more on that later), I have labelled envelopes with categories straight off the Schedule C form- like advertising, meals/entertainment, utilities, rent, and the like. An alternative to envelopes is getting one of those coupon organizers for a buck at the dollar store- super handy. When I’m cleaning out my wallet, I make sure that every receipt gets put in the proper envelope so they’re all sorted by category. If I have the time, I’ll use an app like one included in Harvest (my billing program) or Expensify, that lets you take a picture of the expense and categorize it. You can also enter things like mileage and other notes, like who you were meeting with, in apps like that. For receipts that I’ve entered into apps, I still save them, but mark them with a pink highlighter so I know they’ve been digitally recorded. With any purchases online, I try to immediately enter them into my expensing app as well, but I also have a folder in my inbox titled “expenses,” where I can put email receipts for things like web hosting and can check those against my credit card records at the end of the year if needed. Sites like Outright and Mint can also be really helpful, since they import bank transactions and will categorize them for you.
2. Spreadsheet it out
Once you’ve got your system all settled, you’ll want to go through it come tax time. What I’m doing this year is printing EVERYTHING as well as exporting my records from paypal, my credit card, and Harvest. Exporting the records means, in the cases of paypal and harvest, that I can put the expenses straight into an Numbers (or Excel, if you prefer) spreadsheet, though my credit card charges have to be manually entered if I haven’t already recorded them via an app- though I should have correlating paper receipts for every charge already in my envelope, so I double-checked my receipts against my statements just to make sure everything deductible was accounted for. Sometimes receipts just get lost in transit (or big purses). Here’s where those labelled envelopes come in handy for me, but you can also just look for Schedule C deduction categories and use the ones that apply to your expenses. I create a spreadsheet page for each deduction category: wages, fees, meals, etc., and enter in my expenses from my exported files as well as any paper receipts I have. I like to include the date, amount, and a section for notes- for example, payment amounts or who I was meeting (which I usually write straight on the receipts). Then, it’s a simple matter of taking the sum of the “amount” column and entering that into a program like turbotax when it asks you your total expenses for that category. BAM. So much easier than going through everything with a calculator, and way less chance for error.
3. Talk to an accountant
This is one that I haven’t done yet, but I’ll definitely be hiring an accountant for next year. Accountants know of all sorts of deductions that you might not think about (like printer ink, if you’re using your printer for business) and can help you steer clear of deductions that tend to raise red flags with the IRS– like deducting too much space for your home office. Plus, the laws change every year, so finding a good accountant who can stay on top of that for you means one less hassle for YOU come tax time.
Hopefully this was helpful for you! Please keep in mind- this is only my system that I’ve created and programs I’ve used that have been helpful– not professional tax or legal advice. I’d love to know what other tips and tricks you might have for organizing your expenses as the year goes by…I’m sure I could learn a thing or three!