For business owners, bookkeeping is essential to a good tax return. Simple as that.
A tax return is made up of the financial strategies you implement throughout the year as well as the data you saved. So garbage in garbage out. If you have junk financials you’re going to get a junk tax return with inaccurate data, overpaying in tax, or missing something completely.
First, you need to learn how to create a quality income statement, which is also called a profit and loss (P&L).
An income statement is a basic way of recording/reporting the revenue and the expenses of your business. It really gives you the pulse of your business to know whether it’s thriving or needs some help.
So, what is revenue?
Well, you likely know if you’re going to have some kind of sales come into your business. It might come in weekly, bi weekly, monthly, etc. This is the money you get paid, aka the sales, and it’s considered the revenue on the income statement.
The expenses are, you guessed it, simply business related items you spend money on.
Once you document your revenue and your expenses on your income statement, with simple math, you can figure out your actual profit or loss.
Profit is the revenue that remains after expenses, also known as net income. This is the famous “bottom line” on an income statement.
Truth be told, many people are not tracking their financials and there can be a few reasons for this.
Many people don’t know how to read an income statement, (sidenote: if you’re part of the BollitProof team we’ll teach you all you need to know about reading income statements) or maybe they don’t know how to track everything. Either way, this means they don’t really know crucial information about their business.
When it comes to tracking, there are many new tools that will help make your life easier. Some examples are Mile IQ, Receipt Bank, Quickbook Self Employed (this actually has pre-made categories and their system is smart enough to pick up on expenses and give guidance to the coder).
Receipt Bank, which allows you to just take a picture of your receipt, will most likely take the place of the shoebox method (which is the bane of every accountants existence).
It’s all about tracking the trifecta: sales, expenses and miles.
It’s not complicated but it’s about creating a habit. Spend a few minutes categorizing your expenses through basic bookkeeping, and your business will reap the rewards.
You’ll figure out what’s working and what’s not in your business as well as the tax strategies you’ll need to reduce your income the BullitProof way. As you know, the BollitProof way, utilizing the most effective strategies to achieve the lowest tax liability legally possible.
Sounds doable, right?
Start with an income statement. From there you can ultimately go to the balance sheet.
Bookkeeping allows you to have knowledge surrounding your business. It helps YOU with accountability and it’s an incredibly empowering tool you need to take advantage of.