How to Organize Your Financial Records for A Stress-free Tax Season

Tax season can be extremely stressful, especially for first-time business owners. You have to gather your financial documents, determine your deductibles, and make sure that you submit your forms on time. 

It’s enough to make a person’s head spin, but the great news is that it doesn’t have to be overwhelming. 

Organization is the key to a stress-free tax season. When your finances are organized properly, you can avoid the last-minute panic and confusion that most entrepreneurs experience during this time. 

If you want to learn how to organize your small business’s financial records, you’ve come to the right place. 

This blog will discuss tips on organizing your finances properly for the coming tax season. We’ll also explore why efficient bookkeeping matters to small businesses. 

Discover how staying organized can save you time, money, and countless headaches.

How to Organize Your Financial Records Properly

You don’t need a complicated bookkeeping system to organize your financial records. All you have to do is to create a structure that works for your needs.

Gather & Sort Your Financial Documents

To start, collect your financial documents, like receipts, bills, and bank statements, into one place. 

Once you gather your paperwork, sort it into different categories: expenses, income, taxes, loans, and investments. Place them in separate folders and label them accordingly. 

We also suggest arranging them chronologically. You can add dividers to your folders and separate your documents by month or quarter. This way, you’ll easily track your transactions and locate specific records when needed.

Decide Where You Want to Store Your Records

Once you have a simple filing system, consider where to keep your records. You can go the traditional route of getting a filing cabinet or store them electronically.

Be mindful of documents that contain sensitive information. You must place them in a secure and locked location.

If you store your records in a filing cabinet, ensure it’s safe from potential hazards like fire and water damage. Avoid putting them in areas with excessive moisture and direct sunlight, as these can damage paper and ink. 

On the other hand, if you decide to keep your documents online, ensure your chosen method is safe and reliable. Look for reliable cloud storage services or invest in a hard drive with encryption features. 

Use strong, unique passwords for your cloud database. We also suggest using two-factor authentication. This feature notifies you whenever someone tries accessing your account and requires you to verify any device trying to open your documents. 

Even if someone gets a hold of your password, they will need verification to see your records. 

Make Copies of Your Records

Another important tip to remember when organizing your financial records is to make copies of your paperwork. Having backups of your documents is crucial to ensuring the safety of your financial information. 

Consider making physical and digital copies of important documents like tax returns, investment statements, and loan agreements. You can store your digital backups in an encrypted external hard drive or a cloud-based storage. 

Declutter Regularly 

Over time, your records will accumulate, and you’ll have to start decluttering outdated documents. But how do you know which to keep and which to discard? 

Generally, every financial document has its holding period or expiry date. For example, monthly bills and bank deposit slips should only be kept for less than a year or until you’ve reconciled them. Meanwhile, the IRS recommends keeping crucial records like tax returns and supporting documents for 3 to 7 years.

Understanding the holding period of different financial records will help you keep your filing system organized and clutter-free. 

Stay Consistent

Now that you have an efficient filing system, you must follow it consistently. Make it a habit to file every new document you receive and regularly review your records to ensure their accuracy. 

This routine will help you stay on top of your paperwork and give you a clear overview of your financial standing. 

By maintaining a disciplined and proactive approach to your record keeping, you can enjoy a stress-free tax season and be able to make better financial decisions for your growing business. 

Separate Your Tax Documents

If you don’t have a lot of space left in your filing cabinet, we recommend creating a separate storage space for crucial tax documents, like your tax returns and other supporting records. 

This strategy allows you to create an accessible archive of essential paperwork that you can easily access when needed.

Why Good Record-Keeping Matters to Small Businesses

Aside from tax purposes, there are other reasons why it’s important for your small business to organize its financial records. 

For example, accurate record-keeping improves your decision-making by providing a treasure trove of information. It gives insight into your cash flow, profitability, and overall financial health. Aside from this, it can also help you identify trends and create forecasts for your future financial needs. 

This foresight allows you to set realistic goals and develop strategies to achieve them. Moreover, it helps you save more time. 

Now that you have an organized filing system, you can easily produce financial statements like income statements and balance sheets. These reports are vital for assessing the overall financial health of your small business. Your income statement reveals your venture’s profitability, while your balance sheet showcases what it owns and its overall net worth. 

Ultimately, the advantages of having organized financial records extend beyond tax compliance. Creating and maintaining an accurate filing system for your small business establishes a solid foundation for sustainable growth and long-term success. 

Start Organizing Today

If you need help organizing your financial records, look no further than NCH. NCH offers bookkeeping services for small businesses. Our team of bookkeepers will help you create a comprehensive filing system that grows with your company. 

Aside from this, they’ll also assist you in creating accurate reports that you can use as your roadmap to success. 

Don’t let the coming tax season get the best of you; start organizing your financial records and contact NCH today. To learn more about bookkeeping services, visit our website here or call us at 1-800-508-1729.

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.