- The key to keeping track of tax deductions is to get organized. If you are starting a new business, or even if you have not been very well organized with an ongoing business, you can create a system to help you keep track of tax deductions and avoid the last-minute panic of trying to decide what can and cannot be deducted. The first step in getting organized is to gather all of your paperwork together, including receipts, invoices, vendor bills and any other financial documents relevant to your business. Create a physical filing system for your paperwork, using manila file folders and hanging file folders. Label each manila file folder with, for example, the specific type of receipt. Then label the hanging file folder with a more general category name. For gas receipts, you would label the manila folder "Gas Receipts" and the hanging file folder "Car Expenses." The hanging file folder would also include manila folders for "Insurance" and "Maintenance" for your car.
- The next step in keeping track of tax deductions for your business is to stay informed. Read the latest tax codes and news about changes in tax laws, which occur frequently. You can access specific tax codes for business deductions through the Internal Revenue Service (see Resources). Also, business publications, particularly those that focus on current news updates, are excellent resources for timely information regarding tax-code changes. You should also consult with an accountant who specializes in business taxes or a business tax attorney, particularly if you are unsure about whether an expense is a legitimate tax deduction.
- Using the physical filing system you have created, as well as your knowledge about legitimate business tax deductions, create an electronic spreadsheet that you can update as you incur expenses. Using a program such as Microsoft Excel, set up columns for business deductions, such as expenses related to your home office, if you are a home-based business owner; expenses for equipment and office supplies; and any other business-related expenses, such as vendor payments or professional membership dues. When you determine whether these items are deductible, mark them with a check in a column labeled "Deduction." Enter the information in the appropriate cell as soon as you incur the expense. Create a separate spreadsheet for vehicle mileage, and enter the mileage each time you drive on a business-related trip. Entering this information on a daily or weekly basis will eliminate the last-minute scramble to find and manage the tax deductions for your business.
