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How to Do Your Taxes in 5 Minutes

Image by Steve Buissinne from Pixabay

As a Type-A, I like to finish my taxes the moment the new year begins. Until recently, this required entire days of unpleasant receipt sorting and categorizing, but I’ve now perfected a system so that a few minutes of work here and there throughout the year mean my taxes are totally ready to file on January 15!

I’ve got self-employment, K-1s, a W2 … the works. This approach is most useful for self-employment deductions, which are the biggest time suck (and documentation burden) for me, but it can be useful for other deductions too.

Sign up for Expensify

My approach uses Expensify, which costs around $5 a month. It’s easily worth much more than that to me in saved time and headache. (And Expensify itself is a business deduction!) In a nutshell, you can forward email receipts and photograph paper receipts from your phone, then quickly tag them to generate reports, deduction amounts, etc.

You can also use it to get reimbursed from clients for travel and other expenses.

Set up Categories

You want to create Categories that match your tax deduction categories. For business expenses, these lines on your Schedule C are:

  • Advertising
  • Car and truck expenses
  • Commissions and fees
  • Contract labor
  • Depletion
  • Depreciation and section 179 expense deduction
  • Employee benefit programs
  • Insurance
  • Interest
  • Legal and professional services
  • Office expense
  • Pension and profit-sharing plans
  • Rent or lease
  • Repairs and maintenance
  • Supplies
  • Taxes and licenses
  • Travel
  • Travel: Deductible meals
  • Utilities
  • Wages
  • Other expenses
  • Expenses for business use of your home

Only create those categories that apply to you (check last year’s Schedule C if you’re not sure).

You may also want to create categories for other deductions that apply to you, such as:

  • Automobile registration fees
  • Donations
  • Medical expenses
  • Mortgage interest
  • Solar system equipment
  • Taxes (local)

Set up Reports

I have one main report for the calendar year called “Self-Employment Expenses 20XX.” Each year I create a new report for that year.

I also use reports when I need to submit expenses for reimbursement, one report per reimbursement request. The Report automatically generates a PDF with a summary of expenses and a copy of each receipt.

I used to make more specific reports like “Donations 2018” and “Home Office Expenses 2018” but discovered that was overkill — the categories take care of this for me already.

Optional: Tags

If you want to generate your own reports on expenses by different clients or types of work, you can create and assign Tags. I personally use these for buckets of work (e.g. Layer Aleph, TaskTackler).

Capture Your Expenses

You can do this one of two ways.

With the mobile app, simply open the app and take a photograph of a paper receipt (including invoices you receive in the mail). Do this immediately when you get a receipt.

For emailed receipts, forward the receipt to receipts-at-expensify.com. Do this immediately when you open the email. (You’ll have to complete a one-time setup in your Expensify account for this to work.) For recurring receipts, set up a filter in Gmail to automatically tag receipts, and bulk forward them. (It’s not possible to set up auto-forwarding from Gmail at this time.)

Process Your Expenses

Log into Expensify and click Expenses on the left. This will show you all your unprocessed expenses.

Click on an expense. Confirm or modify the details (e.g. merchant name, amount). Select the correct Category, optionally choose a Tag, and then assign it to a Report. This takes just a few seconds per expense once you get the hang of it.

For recurring expenses, you can create a rule that automatically sets the category and report. Just make sure you update these rules once a year to reflect the new year’s report. I don’t use these rules much, because I like to spend a few seconds reviewing each expense for accuracy.

Schedule Your Weekly Expense Review

In TaskTackler, set a recurring task to “Review recent transactions for tax receipts.” Mine recurs every 7 days. For this task, I quickly peek at my credit card transactions for the last week to see if I missed any deductible expenses, and I process any unprocessed expenses in my Expensify inbox. By doing this on a weekly basis, it takes just a few minutes, and I avoid a big pile of work at the end of the year.

This recurring task should also include photographing any errant receipts in your wallet that you did not photograph right away.

Tax Time!

When you’re ready to do your taxes, go to “Reports” on the left and select your report for the year.

If you have an accountant, you can likely just forward this PDF to them. But if you’re doing your own taxes, you now have the totals for each line item on your taxes in this report — and you have all the documentation ready in an instant if you’re ever audited. Save a backup of this PDF in a trusted location.

Exceptions

Remember that for items like a home office, you can only deduct a portion of the “Expenses for business use of your home” category relative to the square footage of your home office vs the square footage of your entire home. Once you know the square footage percentage, you can multiply this line item by that percentage. For example, if your home office is 5% of the square footage of your home, you can deduct 0.05 * your “Expenses for business use of your home” total in Expensify.

The exception is if an expense is 100% related to your home office, such as a desk or a can of paint. I make this easy on myself and categorize these occasional items separately as “Office expense” so my “Expenses for business use of your home” category is always entirely able to be multiplied by my square footage percentage.

Similarly, as of this writing, Meals can only be deducted at 50%, so you’d multiply your Meals total by 0.5. Categorizing makes handling these sorts of exceptions so easy!

(Please note: I am not an accountant and this is not tax advice!)

Any additional tips? I’d love to hear them!

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