This Podcast Is Episode Number 0201 And It Is About Contractors Are Confused About Bookkeeping Many of you may begin with the thought; I am just a contractor I don’t want to be in business; I just want to do the work That is what is important. Yes, doing the work is important. Keeping track of your hard costs, soft costs, general expenses and overhead is the difference between making a profit or having a loss. Ignoring the costs do not make them go away; it just avoids putting them on the tax return. Any missed expenses make your profit on the job look higher than it really is and causes you to pay more income taxes because all net profit is taxable. All businesses need to keep track of their company expenses, including the material and much more. Contractors usually go from one extreme (doing nothing) to the other (trying to count every bean, every paperclip, all the nails and, the scraps of 2x4’s). The balance is somewhere in the middle. Labor is the biggest cost you will face. As an owner / operator you're entitled to the same wages your construction company would pay for having another construction worker on the payroll. Otherwise, why not go to work for someone else?   Favorite Option: No Bookkeeping System One checking account which is a mix of business and personal expenses. Multiple credit cards which are a mix of business and personal expenses. No formal invoices to customers. Give verbal amounts to customers to pay; maybe send them an email. Have customer payments made out to you instead of the company. Part of the time deposit the check into the checking account. Most of the time Cash the check; randomly put the money into the bank or Hip National Bank. Ignore the government until forced to respond. Usually throw away all your receipts, deposit slips, bank and credit card statements. Emergency; Toss everything you can find later into a file box (all receipts business or personal). Take the Magic File box unsorted and may not have all statements to the tax accountant. Drop and Run – Tax Accountant’s Problem Now. Messy records mean you will pay a lot more income tax. Next Option: Limited Bookkeeping System Contractors are trying to do their own bookkeeping may start with a pile of receipts and some. One checking account which is a mix of business and personal expenses. Multiple credit cards which are a mix of business and personal expenses. Catch yourself from throwing away all your receipts, deposit slips, bank and credit card statements. When you remember, toss everything you can find into a file box (all receipts business, personal, junk mail) Randomly look for the missing bank and credit card statements and add them to the box.   Create written proposal, send the customer an email in “story form” with an amount to pay. Give verbal amounts to customers to pay. No formal invoices sent to customers. Have customer payments made out you or the company (based on what the customer wants). Usually, deposit customer’s check into the bank, maybe put into the bank or Hip National Bank. Ignore the government until forced to respond. Take the Magic File box unsorted complete with junk mail which may not have all statements to the tax accountant. Drop and Run – Tax Accountant’s Problem Now. Messy records mean you will pay a lot more income tax. This process can go on for years until the Contractor is willing to make a change even a slight one; nothing changes. No one can make a Contractor like to do paperwork. It is not a natural skillset. The question is how to make paperwork easier, simpler, and at least tolerable for the Contractor to do before getting back to the “Fun Stuff” like building something, taking apart something, fixing something. To Explain In A Way, Your Spouse Would Understand Contractor’s Clean House (tear out walls and fill a dumpster)  Rearrange Furniture (remodel and move walls) Buy New Stuff (sheetrock, cabinets, light fixtures, plumbing fixtures and...