Spreadsheets Redux — Business Deductions

Mindy KlaskyMindy Klasky
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Time to talk about spreadsheets again…  Last time, I told you about the simple ‘sheet I use to track my annual freelance income.  This time, I’m going to focus on the spreadsheet where I track my business deductions.

Before I jump into that, though, let me publicly invite all Worders who have more advanced spreadsheet skills than I to jump write in, in the comments, with tips and tricks related to the ‘sheets I’m discussing.  I might not choose to adopt those tweaks, but others likely will, and the more knowledge we share, the better for everyone!

(And this is the perfect place for me to tell you that I’m not providing you with legal or accounting advice for your particular situation, that everything I say below is provided by way of illustration and is not meant to be applicable to your specific legal or financial situation.)

So.  Let’s get down to brass tacks.  Federal income tacks.  (I’m only addressing US tax requirements, because that’s all I’ve studied.  I suspect these points can easily be tweaked for those of you in other jurisdictions.)

I routinely save all of my business receipts, placing them unsorted in the last folder of a large accordion file.  Once every quarter, I go through the accumulated receipts and record them in my deduction spreadsheet.  After I record each receipt, I place it in the proper folder of the accordion file.  (I have a separate folder for each category listed below, so that my paper filing system parallels my electronic filing system.)  At the end of each year, I collect all the receipts from the folder, put them in a giant envelope and save them, in case the IRS ever wants backup.  Then, my accordion file is ready to be used again.

Each year, I also create a spreadsheet with multiple pages.  I use it to calculate my quarterly tax payments, and to determine my overall tax due.  I use TurboTax to do my filings, so my deductions are grouped into categories that the software likes (which are taken, in turn, from the categories in the Tax Code).

Each page of my spreadsheet has the following columns:

DATE – DESCRIPTION – AMOUNT – NOTES

Date is self-explanatory.

Description is what I spent money on (e.g., “postage” or “air travel” or “convention membership”).

Amount is self-explanatory.

Notes is anything that I think the IRS might want to know, or that I might want to remember – who received the package I mailed, what was my destination, which convention did I attend.  Sometimes, I remind myself that one calculation (such as my electricity bill) is complete through the middle of June, and another (such as my water bill) is current through year-end.  You get the idea.

I build a page for each major category of deduction:

Advertising (descriptions include Association memberships, Electronic, and Print)

Commissions

Communication (descriptions include Cell phone, Internet, and Landline)

Gifts to charity (descriptions include Cash and Gifts in kind)

Home office  (descriptions include Insurance, Real estate tax, and Utilities)

Legal and professional services

Meals and entertainment (descriptions include Breakfast, Dinner, Lunch, Meeting, and Per diem rate)

Medical expenses (descriptions include Co-pay, Dentist, Doctor services, Laboratory, and Pharmaceuticals)

Miscellaneous expenses

Repairs and maintenance

Supplies (descriptions include Books, Computer hardware, Computer software, Office supplies, and Postage)

Taxes and licenses (descriptions include Business license tax, Business tangible property tax, and D.C. Bar dues)

Taxes we paid (descriptions include Federal tax quarterly, Foreign tax, Personal property tax, and State tax quarterly)

Travel (descriptions include Air travel, Automobile parking, Automobile travel, Hotel, Public transportation, Taxi travel, Tips, and Train travel)

There are also a lot of deduction categories I don’t use.  I keep empty pages for them, in case my needs change during the year.  Right now, I don’t use the following categories:  Assets (Depreciation), Contract labor, Insurance payments, Interest payments, Inventory (Cost of goods sold), Other office expenses, Rental payments, Utilities for business office, and Vehicles.

Come tax time, I sort and subtotal each page, using Excel’s functions.  Ultimately, I end up with a single number (the Grand Total) on each page that gets entered on a line for my tax form.

The tax code is … somewhat obscure about the appropriate category for some deductions.  (For example, when I buy a book for research purposes, is that a “supply”?  Or is it a “miscellaneous expense”?)  My goal is to have a reasonable explanation for each decision I make (one that passes the “red-face” test – can I share it with an auditor without blushing), and then to make that decision consistently from month to month and year to year.

So.  That’s the basic framework.  There are lots of twists and turns, and lots of specific things that I choose to list one way, where I know other authors list them in other ways. 

Did I lose you, way back at the top?  I’m sure you have questions.  Fire away!

 

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18 comments to Spreadsheets Redux — Business Deductions

  • This is excellent, Mindy. Much better throwing the receipts at the hubby and hoping for the best. (rolls eyes)

  • I throw my receipts at Faith’s hubby and nothing ever happens . . .

    Brave woman, taking on this topic. I use TurboTax and have for years, and I have all of this stuff down to a science. But my God, the first few years . . . .

  • Faith – At least this gives the hubby a place to file away the receipts :-)

    David – Apparently I frightened everyone away with this “brave” topic :-) I’ve used TurboTax for years, but I recreated the wheel way too many times before I settled on this system…

  • David: ROFL! All I got.

    Noi response so far, but I think I’ll be bookmarking the whole series for the near future. :)

  • If David gets to throw his receipts at Faith’s hubby, I’m totally bringing mine over, too. As soon as the ice melts, that is. It’s a little slick on the roads right now. ;)

  • Daniel – Bookmarking is a wonderful thing :-) I hope the posts are helpful down the road!

    Misty – I’ll swing by on my way to the Outer Banks — it’s out of the way, but for someone to take over tax prep, I’m all in :-)

  • Dang! I’m gonna have LOTS of great tax deductions!

  • Okay – I’ll jump in here.
    Both your income spreadsheet and (especially) this expense sheet could benefit from Pivot Charts. For a simple ‘sheet like the Income sheet, the Pivot Chart can display earnings by Month (or Quarter) subtotals, with each Source subtotaled for each month, or by Source with monthly subtotals.
    For the Expense Sheet, it could allow you to put all your entries on a single sheet. All you need is an additional column titled “Category.” A Pivot Chart could display every Category, subtotaled by both Category and Month or Quarter, all on one sheet.
    If anyone is interested in detailed instructions, let me know, and I’ll put something together.

  • Tom G

    My first comment was lost…timeout failure? I’m my browser/PC. It happens on other sites, too. So my comment will probably be briefer than the first.

    Thank you for sharing. I’m impressed, since I thought this spreadsheet would be a lot more complicated, with more columns and such. I’m earning enough I need to make quarters, so I’m getting a CPA shortly. Once I meet with CPA I may tweak what you shared with us here.

    Thanks again.

    This time I’m backing up what I am posting here, just in case I have to try again. LOL

  • Lyn – Thanks for fleshing this out with more advanced skills! (Another friend commented in a private message, asking if I could have done the whole thing on one page by adding a column called Category. I could, of course, but I find it clearer to have the multiple pages — but that may just be me!)

    Tom – there have been lots of timeout failures; we’re working on fixing the problem. I’m glad, though, that my posts are helping you prepare for your CPA meeting!

  • Wow! That seems s complicated and I’m sure it’s not. I’ll reread. :)

  • Vyton

    This seems very helpful — if I ever have any income. But you bring up a number of things to think about. I had to switch to a browser other than IE just to log in. It’s working fine now.

  • Mindy, I’m LOVING these posts! I always struggle to find new ways to get better organized and I love seeing how other authors approach these topics. Thanks so much!!

    For my first few years I used Excel (rather poorly) to keep track of things. I’d keep a list of the books I bought (I put mine under research materials), the postage fees, etc etc. It wasn’t pretty but it made sense to me. Now I’ve changed and I use Quickbooks and I’ve been liking my new system. First, I have a business credit card (all my writing is under an LLC) and I use that for everything business — no matter how small. That way I have a record of every business expense (even though often just the credit card bill isn’t enough for the IRS, for me at least it’s a start for how to track down additional records). Whenever I get a receipt I write down the important info (like who I shipped the package to or who I was at dinner with, etc) and then throw it in a box. Then I download my credit card statements into Quickbooks and tag each purchase for the appropriate tax category (I could also put in the notes that I wrote on the receipt but I tend not to).

    At the end of the year I send my Quickbooks file to my accountant but it would be just as easy to run reports on all the categories, etc if I did my own taxes. I rarely end up sorting my receipts — just keep them in the box and toss in printouts of my credit card statements, bank statements (and ultimately a copy of my tax return), etc. I label each box by year and toss it in the attic. It means that down the road if I got audited I’d have to do more work to sort everything out then, but I know myself well enough to know that I’m unlikely to sort as I go so this system works for me.

  • Mindy, this is awesome. I’m going to bookmark these posts and come back to them when I need them.

    I do have to echo the TurboTax comments, though. That nifty little program (Canadian Edition) is so useful that my husband and I use it every year.

  • Megan B.

    Eek, I’m a little scared now. I never thought about treating my writing as a business (if I ever make any money at it…) But a system like yours would make it a lot less scary, at least.

    One question… It sounds as if you are tracking your personal deductions (e.g. medical expenses) and business deductions together. Is that so? I guess that’s just how it’s done if you haven’t created an LLC for your writing business?

  • WaitForHim – Let me know what questions you have upon re-reading! (I’m trying to make even the complex seem clear, so don’t hesitate to point out where I’ve failed!)

    Vyton – It’s always better to have a system in place before you need it! :-)

    Carrie – We use Quickbooks for our personal finance, but I don’t use it for business! I totally understand what you mean about walking that line between work now (when I *know* what it will cost me!) as opposed to the possibility of work later (if I’m audited)…

    Laura – I’m glad you’re finding them helpful — *especially* because you’re able to provide some international insight!

    Megan – Don’t be scared! I am not incorporated — my accountant continues to assure me that what I’d pay in fees outweighs what I’d save in deductions. (Also, I don’t write the types of fiction or nonfiction that make it likely I’ll be sued for libel; a corporation is a useful shield against libel…) Therefore, I take my business deductions as a small business (filing a Schedule C (deductions) and Form 8829 (home office)). Those get entered right next to my personal deductions like medical. Make sense?

  • Megan B.

    Okay, that makes sense. Thanks for the clarification.