How to organize yourself for your taxes

Remember last year when you had a shoebox of receipts, and you promised yourself you wouldn’t do it again this year?

The Shoebox. A well known container for little receipts smaller than your last pair of shoes.  It is true…many of us get so busy running our business that we forget that one day in the future we will have to take in our taxes and get them done.

As a bookkeeper, I can tell you that one of the most expensive things a client can do is be disorganized.  Somebody has to sort all those receipts.  If you don’t do it, then you will be paying a bookkeeper or an accountant that will do it for you.

You may be surprised to hear that it isn’t always best if you do your own sorting.

But, you would be surprised at how much more efficient it is for your bookkeeper to do that sorting. As we sort, we see the things we are looking for, we put it into piles that compliment the work that we have to do.

Often clients will sort their receipts into an order that is logical for them.  Then the bookkeeper gets it, and charges you the time it takes to re-sort the slips into something that makes better sense to do the bookkeeping.

We can’t advise you how to do that up front as each client is different. We can tell you that all of the factors below affect how your work gets neatly laid out.

  • Your personal spending habits can affect how your work is sorted.
  • The type of company
  • The nature of your business
  • Whether or not you charge GST on every sale
  • The service that you engage your bookkeeper for
  • How much you will read your financial reports each month
  • If you mix personal and business

At the end of the day, it may take the bookkeeper 2-5 hours to sort a year’s worth of work.  But in terms of cost, it is well worth it.

What if you want to do it yourself?

The first thing you should do is have a conversation with your bookkeeper to find out how he/she wants it sorted.  If you are a smaller 1-5 person/employee operation, your bookkeeper will likely want it sorted by the bank or credit card statement.

To sort it this way, first take the bank or credit card statements that are used for business purposes only.  Take your bank or credit card statement, and attach the receipts to the back of the statement that they belong to.  It is preferential if you put them in the order they appear.  By sorting this way, the bookkeeper can simply work from the bank statement, and only checking the receipt for clarification purposes.

You will have receipts which are not on the statements, and you need to separate those out clearly from any other statements.

If you invoice your clients, make sure those invoices are put into a separate file.

And next year…invest in a filing system instead of a shoebox.  You will be glad you did!