Except for a few people in this world, no one likes keeping records.  But if you want to get the maximum effect from your tax write offs, you need to get more organized.  In fact, the IRS may impose a penalty if you have inadequate records (this is triggered if there is a 20%+ underpayment of taxes).

First, the key is making this a habit.  That is, if you get a bill or an invoice, then file it.  It’s that simple.  Eventually, it will become second nature.

You may also want to write a note on invoices or receipts.  If not, there’s a good chance you’ll forget some important details (this is certainly helpful for the bookkeeper or CPA).  For example, if you have a dinner receipt, you would indicate whose meal you paid for.

Obviously, I’m suggesting that you toss your shoebox and instead get a sturdy filing cabinet (even in this dot-com world, such things never go out-of-style).

While there are many approaches to organizing the files, here’s one way:

Bills to be paid:  This should help with overdue bills (which can avoid late charges).

Vendors:  Have a file for each vendor, which includes the contracts and any notes.  Or, you can setup accounts for each deduction category, such as the following:

• Advertising
• Commissions/Fees
• Legal Fees
• Office Expenses
• Rent
• Repairs/Maintenance
• Supplies
• Licenses
• Travel
• Meals/Entertainment
• Cell Phone
• Telephone
• Subscription Services

Bank and credit card Statements:  Also, include the original bank agreements.

Tax Returns:  Keep copies of income, local and sales tax returns.

Employees:  You can have a file for each employee, which has signed documents, W-9 forms and any write-ups.

Electronic Records:  You should also have some type of accounting software system, such as QuickBooks.  This will be invaluable for keeping track of taxes — but also in terms of getting a sense of the overall progress of your company.