Big E-Z Bookkeeping

I have noticed that some brand new small business owners are really lost when it comes to organizing their finances: setting up their books, tracking their expenses, or even setting up a checking account.  So here are six easy and practical steps to set up your Income and Expense Categories so they will match your Tax Categories.

First, get out a piece of lined paper. Allow about 25-30 rows for your MAIN income and expense categories and another 50-100 SUBCATEGORIES specific to your type of business. Place these categories into two columns, one for Income and one for Expenses.  You will want to keep this list for years to come, in case you need to tweak it,  so place it in a clear plastic sleeve and write SAVE over it so it doesn’t get tossed.

Now,  follow these tips to help you get organized for next year’s tax time, because it’s too late for this one! Always start at the end. Determine what expenses and sources of income you need to track.  Specifically, what categories will you need year-end amounts for?

1. Set up your MAIN income and expense categories. Small business expense categories can be found on Schedule “C”.  A quick glance at “Schedule C” will give you a startup list of Expense categories, some of which you may choose to use when you set up yours.  These include categories such as Advertising, Contract Labor,   Legal and Professional Services,  Repairs & Maintenance, Travel, Meals, & Entertainment.  Go over them to see those which you will use and those which you won’t.  Think over your business to make sure and jot them down.   (If you already own my bookkeeping software, Big E-Z Bookkeeping, I have included a suggested list of categories for Businesses, Non-Profits, and Personal on the Settings Tab.)

2. Set up your Sales tax and related subcategories. (If not applicable, skip to the next step). If you are like most businesses, you will need to track sales tax.  (If you aren’t sure, determine if you need to track sales tax by contacting the office in your state which regulates Sales and Use Tax. Break up your income into taxable and non-taxable categories like resale, interstate commerce, and exempt services, to name a few, and jot them down.

3. Break down your Income from donors.  (If not applicable, skip to the next step). If donors to your non-profit need a receipt of their tax-deductible donations, now is the time to start tracking this data, so that by January 31you can give them  a yearly statement of monies received for their tax returns.  Figure out what data you will need and jot it down.

4.  Track your payments to Independent contractors (W-2s and 1099 MISC). (If not applicable, skip to the next step). If you have independent contractors—or even household help—and you pay them more than $600 each during the year,  you will need to issue a 1099-MISC for them.  Now is the time to set up columns (subcategories on our Big E-Z system) with their names, addresses, and social security numbers so you can start tracking all your 1099 payments throughout the year.

5. If you need to track both income and expenses for any given subcategory, now is also the time to set up Cost Centers.  (If not applicable, skip to the next step).  Let’s say you have Rental Properties. Rental Income could be the MAIN category and Property A and Property B would be the SUBCATEGORIES.   Expenses associated with your Rental Properties could have several Main Categories such as Gas, Electric, Water, Repairs, Improvements,  Property Tax, Lawn Care, and so forth. Each Main Expense Category could then have the same Subcategories labeled Property A or B.    This way you could see the net profit for each individual property by tracking both income and expenses on a monthly basis.  Another example but for a personal use of the Big E-Z Bookkeeping Software would be:  SSI for a disabled individual still living at home. You could handle the monthly SSI income as well as the different subcategories of SSI expenses and you could see a net balance month-by-month.

6. Make sure you have a paper backup.  Think about which MAIN categories you will have paper receipts for and track them with envelopes with the same category names. For example,  you can use an envelope for Utilities and place all of your paid receipts for the year into it. These envelopes should be bound in a spiral binder so everything for one year is together. This will serve as a paper trail in the case of an audit.  Now let whichever well-structured system you have chosen accumulate the specific category totals you will need for tax time.  Keep in mind the system you use should have checks and balances in place to catch errors.  And it is a must that you reconcile all your accounts to prove their accuracy. The Big E-Z Bookkeeping System is one of those accounts.  Contact us at www.bigez.com to read our blogs or to download a free Cash&Charges Expense Tracker which will also function as a free trial of the way our system operates.  We also have free YouTube video tutorials such as “How to Set Up a Cost Center” or “How to Record Sales Tax”.