If tax season brings you stress every year, it's time to get that under control.
There is no reason to be stressed, worried or dreading tax time each year. It’s not good for your mental or physical health to be stressed out. The reason you probably feel this way is that you have not taken the time to get organized throughout the year. However, with just a little preparation and a system through the year, you can regain control of your emotions at tax time.
There are basic components you will need for tax season. Receipts of payments (think receipts and paid invoices) and records of payments (think bank and credit card statements). If you have a system for filing and obtaining these items, you are 90% done with tax prep. You need a filing system for receipts you pay throughout the year. This system can be whatever works best for you!
Some people prefer to keep a physical paper trail. For physical paid invoices and receipts, you need a physical filing system that works for you. Something like an accordion file folder would work fine or a filing cabinet with folders, if you tend to have larger volumes. How you file receipts and invoices is up to you. There is no right or wrong system as long as you keep them organized in a way that you are able to find what you need when you need it without having to spend a lot of time looking for them. Standard practices include filing by category, vendor name, month or expense category.
If you do not use a software bookkeeping system, you will want a way to track your expenses and income as you receive them so you do not have to spend hours at tax time adding all of your receipts up. Whatever you use, at the end of each month be sure you total the expenses and income in each category. You need the receipts for audit purposes but you need the monthly totals for tax purposes. It is important to do this every month so you also know the financial health of your business.
If you have a software accounting system for bookkeeping, the application often has a mechanism for attaching receipts directly inside of the program. I recommend HubDoc or Receipt Bank. Alternately, you can set up a digital filing system. Set up a folder for the year, inside of that folder set up the files to store your receipt in a similar to how you would set it up in a filing cabinet.
The easiest form of any type of bookkeeping is to use an accounting software. For those on a budget there is are free programs available. Often people will use an excel spreadsheet, this is not something I recommend to track income and expenses. It is far to easy for a small error to compound and the biggest reason I prefer accounting software, it will scale and you are able to run reports that will provide you with a wealth of information.