Using Harvest to Track IRS Business Expenses

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1 Using Harvest to Track IRS Business Expenses 3 Kevin McGee / NETAIS LLC, 3-August-2009 I don 9t know anyone who enjoys tax preparation. But after several years of running my own small professional services business, I 9ve realized the exact cause for my irritation: tracking the expenses I rack up in a 12 month period. These amounts 3 all non-billable 3 find their way onto Schedule C of the U.S.

Federal tax filing. Fortunately, Harvest makes recording and reporting them a breeze. Disclaimer : this post shares techniques the author has found useful.

It does not suggest a course of action, recommend any particular product, or claim to be best, or only way to perform expense tracking. Start at the End Like any writer, I approach a project by focusing on the final product. In this case, it 9s good old IRS Schedule C - Part II Expenses , to be exact.

Part II contains a collection of common business expenses; the tax doc instructions defines them. I use these specific expense categories as the basis for record keeping throughout the year. Setting Up Harvest To begin, I use a client record that represents my firm.

(This is useful for tracking a variety ... more. less.

of things, not just expenses.) Next, I set up a project to serve as the cbucket d for all non- billable business expenses. Note that it 9s defined in Harvest as non-billable ; this prevents data entry errors in the future. Following that, it 9s time to get to work. Using Manage / Expenses , I set up an expense category for each expense line listed on Schedule C. Although this is pretty tedious, it 9s a one-time operation. (Maybe someday H ARVEST will automate this step 3 hint, hint&) It 9s worthwhile to note the simplicity of H ARVEST expense categories 3 they are essentially tags. There 9s no facility to link expenses to accomplish croll up d or so on. This is important only in situations where we want to track expenses in more detail than dictated by the Schedule C collection. An example of this is the Other Expenses category. I prefer to track expenses for postage, printing, and other things separately, but report them all as 2 Other on Schedule C. For these expenses, I include in the name of the expense category a reminder of how to combine them for reporting at tax time. To quickly recap, I use a Client for my business, a Project dedicated for Tax, and a set of Expense Categories aligned to the Schedule C. Record Keeping My business expenses naturally group into three categories: one-off, credit card, and monthly recurring. Here 9s how I record them in H ARVEST . One Off One-off expenses are occasional cash purchases. I save the receipt and enter it using the expense entry tool. Here 9s a sample entry for a parking structure that only accepted cash. I mark the receipt so I know that it 9s been entered and stash it in a receipt folder. (Some folks go to trouble of scanning all receipts to go cpaperless 9, but that 9s a nice to have . Just make sure you get and keep a receipt for all significant cash purchases. Your tax professional can define csignificant d for you.) Credit Card For credit card purchases, I use a separate card strictly for business purposes. When the statement comes, I work through it line-by-line and enter each purchase as an expense using H ARVEST . This can be a little tedious, but I 9ve found doing this once a month from the statement is the best tradeoff between time and effort. It also forces you to mentally creprocess d each purchase which can be good for cost control. Don 9t forget to keep receipts for credit card purchases, too. Monthly Recurring As the business grows, there are more and more recurring expenses. Examples include rent, charges for technical services, and software subscriptions (like Harvest) that are billed monthly. Generally these charges have fixed amounts and due dates. H ARVEST could provide a little more help in this area, as I maintain an external list of my recurring expenses. Here is a look at a monthly expense set-up check list maintained on CheckVist , a free web based tool. I use it to define all of the expense entries I need to set up at the beginning of a new month. The list contains a general entry ( Description ) that reminds me what to do, followed by one line for each expense entry to put into H ARVEST . 3 I include a short description of the entry, the amount, and the expense category to use. CheckVist uses a handy checklist format for printouts that make this task even easier. Reporting Reporting is pretty simple using the H ARVEST reporter. During the year, I check expenses by category (as shown in the figure.) At tax time, I use the LAST YEAR setting and ALL categories to generate a complete report. Then I export the data into Excel for a few quick post- processing steps. (H ARVEST could help a little here as well&) First, I sort the exported data by category and date. Next 3 using the category names as a reminder 3 I combine categories that are more detailed than Schedule C requires. For example, my categories cPostage & delivery (Other) d and cPrinting and Reproduction (Other) d are combined. Finally, I add some category subtotals to compute the figures for the Schedule C expense categories. By the way, saving the Excel file is a great coffline backup d for the source of your business expense data. So there you go 3 a simple, cheap and effective way to get a little more from your H ARVEST subscription and ease the pain of tax time to boot. ###

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