How to Make Taxes Easier Next Year
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This post is brought to you by Stitch Labs, providers of the must-have app for small businesses to manage inventory, orders, customers and more.
If you’re using Shoeboxed, you’ve already discovered how automating your receipt records can save you a lot of work at tax time. With that in mind, let’s look at another way to save you from extra stress and make taxes easier next year: good inventory management habits.
Step #1: Know what to track
Hindsight is 20/20 at tax time. It’s not uncommon to think, “If only I had kept track this one thing, I would not be up all night with my calculator.”
Avoid this sentiment and make sure to track these metrics:
- Inventory levels – You need an accurate count of products on hand at all times, but this can get tricky if you sell across multiple sales channels. Consistency here tells you when to reorder and prevents lost cash flow due to overstocking or lost sales due to selling out.
- Cost of goods sold (COGS) – COGS is a necessary metric for completing taxes, but you should track the numbers that comprise it throughout the year. These include the costs of raw materials, along with direct labor costs used to produce the goods. It excludes indirect expenses (e.g. distribution and sales force costs). Tracking and organizing these costs year round will save you the headache of pulling them all together at year-end.
- Works in progress – Counted separately from finished goods, works in progress include unfinished units that haven’t been sold yet or haven’t been promised to a customer.
Step #2: Automate your tracking
Embrace current technology that automates the process, to make it easier to keep track of the metrics you need to.
- Commit to a system – While more than one inventory tracking system will work, you need to commit to one and make regular updates. Set a time at the start or end of your day to enter inventory data and do a quick check for accuracy.Early on, an Excel or Google spreadsheet can work well for tracking your data. Rows and columns are easy to add as you include new products or new inventory data. As you grow, transcribing data and product updates to a spreadsheet becomes time consuming. Here, an inventory management system like Stitch Labs can serve as a robust repository for your data and serve as a daily dashboard.
- Integrate your data – Look for systems that allow you to integrate your sales channels as this will bring all your data into one place. Many people let sales numbers sit within each channel until they need to add them up. Don’t lose day-to-day visibility of your inventory and sales because your data is in disparate locations. Plus, it slows you down when you need to bring all your totals together, like when you do your taxes.This is another place where an inventory management system can make taxes easier next year. A system that integrates with multiple sales channels draws your sales numbers into one place and update your inventory automatically.This saves a lot of time in transcribing inventory and sales data into your own spreadsheet, plus it puts it in a format that’s easy to pass on to your accountant at tax time.
- Go paperless – Collecting and tracking your data digitally makes it easy to find the exact record you need when you need it. As you automate, look for systems that allow you to make your data digital. Not only do paper documents consume space and take more time to organize, they aren’t searchable.Additionally, digital documents can be backed up online. This lessens the risk of losing important data, but also makes it easier to access and share with others you work with. For example, inventory tracking software will let you export your data to CSV format so your accountant can use immediately.
Use these practical steps to make taxes easier next year. Pay attention to the calculations that gave you the greatest headache this year and break down the numbers that went into them. From there, look for ways to regularly track these numbers and applications that will automate the process.