For most self-employed people, bookkeeping is about as much fun as a root canal. But like it or not, it must be done, otherwise you’ll end up overpaying your taxes big time.
Perhaps this article will help you see this tedious task in a new light. Follow along with me and let’s turn your bookkeeping nightmare into the best paying part-time job you ever had.
First, a question: How much money do you make right now — per hour — at your “regular” daytime job or in your business? Is it $15 per hour? $25 per hour? $50 per hour? Make a mental note of that amount, ok?
Now, let’s say by “keeping the books” this month, you are able to find $1,000 worth of deductible expenses. Let’s also assume you are in the 35% tax bracket (15% federal income tax plus 15% self-employment tax plus 5% state tax). So, for every $1,000 of deductions, you save yourself about $350 in taxes ($1,000 x 35% tax rate).
One more assumption: it takes you about 2 hours to properly record and document that $1,000 of deductions. Hmm. You spend 2 hours and save $350 bucks. How much money did you just make for yourself — per hour? $175 per hour. Now compare that to how much you make per hour working in your business or at an employee job. Which “job” paid you more?
Even if it takes you 4 hours — it’s like having a job that pays you $87.50 per hour. Still a pretty good hourly wage, don’t you think? How does that make you feel about bookkeeping? Not such a bad deal after all, is it?
Still not convinced? Making $87.50/hour or $175/hour isn’t enough motivation? I understand. I know how painful it can be to crunch those numbers. Bookkeeping isn’t for everyone, especially if you prefer not to touch anything financial with a 10-foot pole.
If just the thought of doing the books makes you break out into a sweat, please consider this advice: outsource it. Hire someone else to do it. If you really hate it that much, why torture yourself?
“But I don’t want to pay someone else to do it.” Is that what you’re thinking now?
Let’s go back to the numbers above. You can find a good bookkeeper for $15/hour (or less). If tracking your expenses is saving you $175/hour and you pay someone else $15/hour to do the books, you’re still coming out ahead by $160/hour. The cost of the bookkeeper is covered by the tax savings it creates.
Either way, whether you do-it-yourself or outsource-it, bookkeeping is the best money-saving activity in your small business arsenal. Take advantage of it.
Wayne M. Davies is author of 3 tax ebooks: How To Incorporate Your Small Business For Free, Incorporation Tax Secrets Revealed, and The Small Business Tax Reduction Toolkit. For a free copy of his Special Report “How To Instantly Double Your Deductions”, visit YouSaveOnTaxes.com.