Everyone starts their year intending to keep diligent records of their business expenses all year long—especially if they’re fresh off of a grueling weekend of preparing their tax return with unorganized and disparate records, and want to save themselves from repeating the experience next year.
Pledging to track your expense information with spreadsheets, handwritten ledgers, or bookkeeping softwares works beautifully in theory. But in reality, these systems still require effort to maintain, and it’s understandable that there will be gaps to go back and fill in before you’re able to prepare an accurate tax return.
At Found, we’ve seen firsthand how stressful it can be to work with incomplete business records. Here are our tips for filling in the gaps in your recordkeeping before you file taxes, so that you don’t miss out on valuable deductions or data.
There are a few reasons why you and your business will benefit from consistent recordkeeping:
Step 1 in completing your business records is to figure out where your records are accurate and complete, and where they’re not. You’ll need to review your expense records for the year and take note of where you need to go back and find expenses that you weren’t recording throughout the year.
Found’s recommendation: Tally up your total expenses for each month, and compare them to what you believe is your most accurate and up to date month. Use that to figure out where you likely have gaps. For example, let’s say you kept thorough records in January of 2020 which show that you spent about $1,500 on your business that month. If you believe you worked, earned, and spent roughly the same amount in January as you did for the other months of the year, then you’ll know that any monthly records showing that you spent significantly less than $1,500 for work are likely incomplete.
A quick and impactful step that you can take to fill in your expense records is to add in all of your recurring expenses. If you know that you’re automatically charged weekly or monthly for a business expense, make sure that expense is listed the right number of times in your records.
Phone bills, software subscriptions, venue or office rent, insurance, contractor payments, and membership fees are common recurring expenses that we see at Found.
You can use a similar approach for expenses that you don’t pay for automatically (like a phone bill), but that you know you pay for frequently. For example, if you know that you tend to go to the same home improvement store each month to stock up on supplies for your business, then you can look for purchases made at that particular store each month to make sure that you’re deducting each of the purchases.
This part is a little more tedious. For any gaps that you see in your recordkeeping, you’ll need to go back through your records to look for purchases that you made for your business. Here are some places we recommend you look:
Once you’ve gotten through the process of filling in your 2020 records, you may want to re-evaluate your bookkeeping system for the rest of 2021. It’s best to choose a bookkeeping system that you feel confident you can maintain throughout the entire year.
Look for solutions that can automatically track as much information as possible. Lots of digitized bookkeeping apps or software can be linked to your bank or cards, so that the amount, merchant name, and date of a transaction is automatically tracked in one place. The best systems will also prompt you to complete your records as you go by asking you to add receipts, details on the business purpose of the expense, and an expense category.
If you use Found as your business bank account, most of your expense information will be automatically tracked for you any time you swipe your Found card. You’ll just need to check that we’ve categorized the expense correctly, and add a receipt photo where applicable. You can get started for free here!