The year is quickly—finally—coming to a close, which means it’s time to start getting your affairs in order for the new year. Organizing your business records, re-evaluating your business practices, and preparing for the upcoming tax season can help you set yourself up for success.
Here are some steps that Found recommends self-employed people take before the end of the year, so they can start the new year stress-free and organized.
When you file taxes, you’ll need to ensure that you have proper documentation for any expense you want to deduct. This includes the amount and date of each expense, the merchant, the business purpose for the purchase, and a receipt or receipt photo for the purchase. In the unlikely event that you’re ever audited, this is the kind of documentation that the IRS would ask you to present to make sure you’re deducting your expenses appropriately.
If you’ve been tracking all of this information for your business expenses in one place throughout the year (like an expense tracking app, a spreadsheet, or a handwritten ledger), you’re all set! The records that you’ve been keeping would suffice in an audit. Found users - this means you!
Where do you look for tax-deductible business expenses you haven't tracked?
If you haven’t been tracking your business expenses—or if you’ve tracked some of them, but not all—then you have some homework to do if you want to deduct those expenses on your tax return. There are a few places you can look for a record of any business expenses that you weren’t tracking:
Your credit card and bank statements: Your bank or credit card company will have tracked any purchases you made throughout the year. Looking back through an itemized list of your purchases can help you find business expenses you weren’t tracking throughout the year. Tip: A lot of bank and credit card apps will only show your transactions from the past 30-90 days. Look for your monthly account statements to see a full history of your purchases!
Your work calendar: Sometimes, the hardest part about remembering what you’ve spent on your business is remembering where you were on any given day. Reviewing your appointment book can help you track down any expenses that you may have made while on the go. Got lunch with a client in September? Now you’ll know the date and rough time of when to look for a work-related lunch purchase in your credit card statements.
Payment platforms like Venmo, Square, or PayPal: If you’re making any work-related purchases with these payment platforms, go through your account history to find a record of any purchases that you made that may not be reflected in your bank statements.
In addition to a receipt or record of each business expense, you’ll also want to make sure you’ve grouped your expenses into categories. When you file your taxes, you’ll need to enter all of your expenses into your Schedule C; categorizing them ahead of time will make the filing process easier.
Found users: You can categorize your expenses directly from your Found app! You’ll see the option to add an expense category on each of your expense records.
Self-employment often means receiving income from multiple sources, clients, or platforms, instead of just one job. If you haven’t been keeping track of income throughout the year, now is a good time to start tallying up your payments from your previous year's work.
Any income you receive in exchange for goods or services is taxable, so you’ll want to ensure you report all of your earnings. Bank statements, payment apps like Venmo and PayPal, work-related platforms like Etsy or Upwork, or gig work platforms like Lyft or Doordash are good places to start. Don’t forget - cash payments are also taxable and should be reported on your tax return.
Still waiting on outstanding invoices from work that you did last year? Now’s a good time to follow up with your customers to make sure they can pay before the year ends!
Most self-employed people use the cash method of accounting, which just means that you report your income as it’s paid, not when the work was performed. For example, if you run a cleaning business, and cleaned a house in December of 2021, but weren’t paid for it until January 2022, you’d report that income on your 2022 tax return, not on your 2021 tax return.
Unless you have a business reason for deferring income to the following year, you’ll want to make sure you receive payment for your work before the year ends, so all of your expected income and expenses are reported on the same tax return.
Even if you can’t file your taxes yet, you can get started by choosing your filing method and gathering the necessary tax information so that the filing process is as painless as possible.
You have a few tax filing options available to you, including:
Online filing software like TurboTax, TaxAct, or H&R Block Online: A lot of these softwares will start offering discounts on their offerings in January, so keep an eye out! There are also some free options, including FreeTaxUSA and the IRS Free File program.
Independent tax preparers and CPAs: The IRS has a registry of credentialed tax return preparers on their website here. You can use that site to find a tax preparer or to double-check the credentials of someone you’re considering hiring.
Tax preparation box offices like H&R Block or Liberty Tax: This is a good option for people who want to work with a tax preparer, but at a reduced price and without having to search for an independent preparer.
Free in-person tax filing services: You can qualify for free in-person tax preparation if your income is below a certain threshold. IRS programs like VITA and TCE offer tax prep sites in every state, and a tax prep nonprofit is likely located in your community.
Filing by hand: For experienced filers, you can also fill out your tax forms by hand and mail them in.
With December typically being a slower month for a lot of non-retail businesses, now is also a great time to take a look at your business operations and set business goals, and make improvements that will help you save time and grow your business.
If gathering your business expense and income information from 2021 will take you more than a few minutes, it’s a good idea to re-evaluate how you’re keeping track of your business records.
In general, the IRS recommends tracking your income and expenses ”contemporaneously,” which means keeping track of the information as you go. Recording your expenses and income on the same day they occur will ensure you don’t accidentally leave anything out of your tax return. Remember—deducting business expenses will lower your tax bill, so losing track of your expenses costs you money at tax time!
Different methods work for different business owners, but we recommend choosing a bookkeeping method that you’re most likely to keep track of daily, at the moment that you spend or receive money—whether that’s a spreadsheet, a bookkeeping app, or a handwritten ledger. Found bank accounts are a great way to make sure your business expenses and income are recorded and categorized as they happen, without you ever needing to do review your purchases to pick out which expenses were for work.
If you typically have more downtime during December while customers are busy celebrating the holidays, that’s a great time to revisit your website (or other promotional sites, like Etsy or Instagram) to make sure they describe and promote your business as well as possible. Some details that we recommend updating or adding to your website if you haven’t already:
Positive customer quotes, reviews, and other testimonials
Photos and details of completed projects that you’re proud of
Upcoming events that you’re attending or hosting
Price changes, discounts, or deals that potential customers should know about
Now that you have a little more hindsight on how your business performed in 2021, you can look back at your business operations and find improvement areas. Notice that you were spending several hours per week creating and sending invoices to your clients. It might be time to invest in software that offers invoicing.
You may also consider signing up for a time-tracking app that will help you track how much time you spend on certain tasks. At Found, we use Harvest to track how much time we spend on various projects.
When you start the new year, you’ll want to be as organized and ready to take on the new year as possible. To help future you hit the ground running, be sure to use the rest of this year to:
Gather all of your business records from the year, and store them in one place (like a bookkeeping app, or a spreadsheet) to make tax filing easier
Take stock of where you’re spending your time, and make adjustments as needed—or invest in software that can help you save time!
Re-evaluate your bookkeeping system to ensure you’re tracking your business transactions as quickly and efficiently as possible. Found is a great option to keep your business records organized and IRS-ready!
Questions about bookkeeping, preparing to file taxes, or how to use Found to your advantage? Contact our Customer Experience team at [email protected]!
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