If you’re using Freshbooks, chances are good that it’s because you wanted to simplify your bookkeeping. The only thing most entrepreneurs hate more than invoicing is doing their taxes. So, I came up with a tip that will help you with both.
Are you already using Freshbooks to keep track of your expenses? If you’re not, you should. It’s a really good feature, and makes it so much better than the traditional Excel spreadsheet that so many of you are currently using.
If you are, you’ve probably got a few categories set up. Maybe you’ve got categories like Meals, Utilities, and Rent. If you’re going to set them up anyway, here’s a way to set them up that will also make tax time easier for you or your tax preparer.
If you’re a sole proprietor or partnership, you’ll be doing up a T1 return this year. For your small business you’ll be using the section below to fill out your expenses.
Do you see the categories used, and the numbers on each line? This is how you’re going to set up your expense categories in Freshbooks. I’ve shown you a few in the image below.
Now, when it’s time to do your tax return, your expenses are labelled correctly, and they’re in the right order. Instead of trying to figure out where you should put “Hosting” or “Promo” on your return, each expense will already be in the proper category. All you’ll have to do is generate a report, and play the financial equivalent of paint-by-numbers. If you haven’t used reports before, check out the post I did about Freshbooks reporting during my experiment.
The idea here is almost the same, except you’ll probably be sending these off to your accountant instead. T2 returns are not for the faint of heart, so you probably won’t be doing them yourself. However, setting up the categories like this will make it MUCH easier for your bookkeeper/accountant to prepare the return, which means big savings for you if you’re paying by the hour. Before you get started, ask them to send you a list of the expenses and numbers they use, so you can set them up properly.
Do you have any tips of your own? Freshbooks, and services like it, are meant to make your life easier. If you have found a way to make it even more efficient, let me know in the comments.
If you need some help setting up Freshbooks (or any other bookkeeping app), or if you have questions about your tax return, feel free to contact me.