It’s a super simple, easy-to-use tax resource, made just for small business owners.  Whatever shape your accounting information is in right now, we have step-by-step instructions on how to get organized and ready for tax season.

Ready to see how easy taxes can be? Check out our Year-End Survival Kit!

“My bank statement is my best source of transaction records”

1. First, you’ll need to determine the period for which you need a bank statement. The goal is to fill any gaps that exist in the data record in Wave. For example, assuming your fiscal year is January 1 to December 31, let’s imagine that you signed up for Wave on September 1 and have all your information up to date from them on. In that case, you’ll want to access your online banking records from January 1 to August 31.
Of course, if you need the entire year’s worth of data, see if you can download the whole thing.

2. Now you need to determine how far back your bank will allow you to export an electronic statement. If your bank allows you to export data for the entire period you identified in Step 1, you’re set. If you can only get a part of that period, you’ll have to deal with the remaining time by using your Quick Entry instructions.

“Right now, I use a spreadsheet to track my money”

These steps will help you migrate from a spreadsheet into Wave.

1. Ensure your spreadsheet lists both Income and Expenses, with a seperate column for sales taxes. Organize your spreadsheet into categories (like “Office Supplies” or “Rent”), calculate subtotals for each one, and double-check that the totals and subtotals are correct.

Make sure all these transactions are from one fiscal year (2011). If your spreadsheet includes more than one fiscal year, create a new spreadsheet for each one.

(Note: The following steps only work for your Business accounting in Wave. If you’re trying to do something similar for your Personal finances, you’ll have to use the Quick Entry tool.)

2. Sign in to Wave. Go to Settings.

3. Select Journal Transactions.

4. Select Add Transactions.

5. For Description, write something like “2011 fiscal year end expenses” that clearly describes your entire spreadsheet.

6. Under Date, select the final date on the spreadsheet. i.e. if your spreadsheet shows information up to May 1, write May 1 in the date field.

7. From the Account drop-down menu, select the account that best fits each spreadsheet category. Under Description, write in the name of the category that you had in your original spreadsheet.

8. Write expenses in the Debit field, and revenue in the Credit field. Continue to add lines until you have input each subtotal from your spreadsheet.

Note: Taxes should not be included in your subtotals. Enter taxes as separate lines. For any taxes you collected, add a new Journal Transaction, select Taxes Payable from the drop-down menu, and input the amount in the Credit column. For any taxes you’ve paid, select Taxes Receivable and input the amount in the Debit column.

9. All Journal Transactions must balance. That means the total of the Credits must equal the total of the Debits. If there is a difference between these once everything is input, you’ll need one more entry to make things balance.

Click Add a Line. Select Retained Earnings/Deficit from the drop-down menu. Next, look at the total Debits and total Credits. Make a mental note: Which is greater? Subtract the smaller one from the larger one. If the total of your Debits is greater, put the difference in the Credit column. If Credit is greater, put the difference in the Debit column.

10. Select Save. The information from your spreadsheet is now listed in Wave as Income and Expenses.

11. Keep your spreadsheet for future use, since it lists each individual transaction.

12. Congratulations, you can skip Step 2 and move on directly to Step 3!

Need more help?
If you want more assistance, or if you prefer to let someone else do the work, we can put you in touch with accountants and bookkeepers from the Wave Pro Network. Find a Wave Pro.

Make your next tax year as pain-free as possible: Sign up for free online accounting for small businesses, by Wave.

“Right now, I use a different accounting application, but I’m switching to Wave”

1. In your other accounting application, run a “Trial Balance” report. This trial balance should cover your entire fiscal year (presumably 2011), unless you have data from other sources already in Wave. If that is the case, avoid repeating data from overlapping time periods. (i.e., if you only want to import data from July to December, only run the trial balance for that period.)

2. Sign in to Wave.

3. If you have more than one business set up in Wave, make sure you have selected the correct business. Go to Settings.

4. Select Account Balances. Make sure that each account in your old Trial Balance is also represented in Wave. If any are missing, add an account.

5. Before you begin to input any information into Wave, make sure the Sales Taxes in Wave are set up properly for your needs.  You can do that under Settings > Wave Setup. Make sure your Wave account includes all the sales taxes you tracked in your old accounting software, as well as any others you may deal with now.

6. With your Trial Balance from your old accounting application in front of you, copy the amounts from the old trial balance to Wave’s Account Balances.

7. As Wave will not have the specific transaction history, ensure you keep a copy of your old accounting information for your records.

8. Congratulations, you can skip Step 2 and move on directly to Step 3!

Need more help?
If you want more assistance, or if you prefer to let someone else do the work, we can put you in touch with accountants and bookkeepers from the Wave Pro Network. Find a Wave Pro.

Make your next tax year as pain-free as possible: Sign up for free online accounting for small businesses, by Wave.

“Right now, I track my expenses using a tool other than Wave”

1. Log in to your expense tracking software (such as Expensify).

2. Download a report with your yearly totals from this software. Expense software does not track revenue, and revenue still needs to be identified from information such as bank statements, a spreadsheet, receipts, or another accounting application.

3. Sign in to Wave.

4. Go to Settings.

5. Select Journal Transactions.

6. Select Add Transactions.

7. For Description, write something like “2011 fiscal year end expenses” that clearly describes your entire report.

8. Under Date, select the final date on the report i.e. if your report shows information up to May 1, write May 1 in the date field.

9. From the Account drop-down menu, select the account that best fits each category subtotal.  Under description, write in the name of the category that you had in your original report.

10. Write the amount of each expense subtotal in the debit field. Continue to add lines until you have input each line from your report. To enter your revenue, select the most relevant category from the drop-down menu and enter the amount into the credit field.

Note: Taxes should not be included in your subtotals. Enter taxes as separate lines. For any taxes you collected, select Taxes Payable from the drop-down menu, and input the amount in the Credit column. For any taxes you’ve paid, select Taxes Receivable and input the amount in the Debit column.

11. All Journal Transactions must balance. That means the total of the Credits must equal the total of the Debits. If there is a difference between these once everything is input, you’ll need one more entry to make things balance.

Click Add a Line. Select Retained Earnings/Deficit from the drop-down menu. Next, look at the total Debits and total Credits. Make a mental note: Which is greater? Subtract the smaller one from the larger one. If Debit is greater, put the difference in the Credit column. If Credit is greater, put the difference in the Debit column.

12. Select Save. The information from your report is now listed in Wave as Income and Expenses.

13. Keep your report for future use, since it lists each individual transaction.

14. Congratulations, you can skip Step 2 and move on directly to Step 3!

Need more help?
If you want more assistance, or if you prefer to let someone else do the work, we can put you in touch with accountants and bookkeepers from the Wave Pro Network. Find a Wave Pro.

Make your next tax year as pain-free as possible: Sign up for free online accounting for small businesses, by Wave.

“Right now, I keep my data in a shoebox”

1. Decide how you will be tackling the shoebox.  You have four options:
a. You can attempt to link your bank accounts or upload bank statements. If all of your receipts are reflected in that data, you won’t need to enter each transaction manually.
b. Use a receipt service like shoeboxed.com.
c. Hand the box over to an accountant (perhaps along with a nice box of chocolates or bottle of wine) and have them clean up the mess. (We can help you find an accounting pro if you need one.)
d. Manually tackle this shoebox yourself.

If you’ll be handing the receipts over to an accountant, you don’t need to continue reading. If you’ll be using a receipt service like shoeboxed.com, you’ll then follow the instructions for expense tracking software. If you’re connecting a bank account or uploading electronic statements, follow the instructions in our bank statement post. If you’ll be manually tackling these receipts, read on!

2. The next thing you’ll need to do is organize your receipts. You’ll want to separate them into two piles: one for business and one for personal. If you have multiple businesses, separate each of these into different piles as well. Once they are divided, you may want to split each pile into two: one for expenses, one for income.  Do not enter all of your receipts into one business if you have multiple businesses!

3. Now that your receipts are organized, sign in to Wave and go either Income or Expense, whichever you’d prefer to enter first.

4. Select Quick Entry, and follow steps 5,6, and 7 for each receipt.

5. For Date, input the date the expense was incurred. For amount, input the amount before taxes.  The Customer and Vendor field are not required for tax purposes, but should be filled in if you want to take advantage of the Expense by Vendor and Income by Customer reports in Wave. Select the relevant Tax Rate; Wave will calculate the amount and update the total. If you need to adjust the tax amount (for instance, on a bill where only some items are taxable) you can override the calculation manually.
If you don’t have sales taxes set up in Wave yet, click the “+” sign next to that field and follow the steps.

6. You probably don’t have receipts for things like credit card fees, bank service charges, direct withdrawls, or anything paid out of PayPal. Double-check your bank statements and credit card statements for these charges, and enter them using the same steps as above.

7. Once you’ve input all of your information through Quick Entry, you can skip Step 2 and move directly to Step 3!

Need more help?
If you want more assistance, or if you prefer to let someone else do the work, we can put you in touch with accountants and bookkeepers from the Wave Pro Network. Find a Wave Pro.

Make your next tax year as pain-free as possible: Sign up for free online accounting for small businesses, by Wave.

“Wait…I was supposed to track receipts?”

As a small business owner, it’s imperative that you track your income and expenses for tax purposes. If the year has gone by and you haven’t been doing this, see the steps below for ways to build your financial picture.

1. Start by either connecting your bank account to Wave, or uploading electronic bank statements, and then follow the instructions in our bank statement post.

2. Go through your email history and PayPal history, looking for receipts and invoices. Enter this information as you would if it were a receipt in your shoebox.

3. Ask your vendors for a statement of account, or any information they have about your expenses with them. This information should also be entered as if it were a receipt in your shoebox.

4. Tap any other sources where you may have been recording sales and expense information.  Once this data is input, you are ready to move on to Step 2 (if you imported bank statements) or Step 3 (if you entered receipts manually).

5. Don’t forget: You have a legal obligation to report your financial information. For the future, we recommend connecting your bank accounts to Wave, so you have an accurate financial picture going forward.

Need more help?
If you want more assistance, or if you prefer to let someone else do the work, we can put you in touch with accountants and bookkeepers from the Wave Pro Network. Find a Wave Pro.

Make your next tax year as pain-free as possible: Sign up for free online accounting for small businesses, by Wave.

Ready. Set. Categorize!

If you uploaded bank statements or connected your bank accounts, you need to categorize them. (Though if you’ve entered all of your transactions using the Quick Entry method or using Journal Transactions, this work will already be done.) If you still have transactions (i.e. Income or Expenses) that you have not input into Wave, go back to Step 1 and follow the instructions.

1. Sign in to Wave.

2. Click Imported Transactions.

3. Scroll down until you see a list of your imported transactions.

4. If categorizing a large quantity of transactions, you may find it easier to sort by Description. That way similar transactions will already be grouped together.

Now do the following steps for each transaction you have on this screen.

5. Select the checkbox of the transaction you want to categorize. Then, click the green box under Actions.

6. Determine if the transaction needs to be split. You can split a transaction if:

• part of it is a Personal expense and part of it is Business
• if you want to assign part to one business, and part to another

To split a transaction, select Split this Transaction. Indicate the amount for each portion of the split. You can split each transaction into as many pieces as necessary.

7. Now calculate the sales taxes that apply, if any. (This step assumes that you have already set up all your sales taxes in Wave. If you haven’t, you will be prompted to Add a Tax. Follow the directions, then return to Imported Transactions.)
Click Calculate Sales Tax, and select the applicable sales tax(es). Wave will automatically calculate the amount. If you did not pay taxes on your entire expense (such as a restaurant bill that includes tip), you can override the calculation manually.

(Note: Always split your transactions before you attempt to calculate sales tax. If you attempt to calculate sales tax before splitting an expense, the system will delete the tax.)

8. Once an expense has been split, and necessary Sales Taxes calculated, you can categorize your expense. First, make sure that you’ve correctly selected either the Business tab or the Personal tab in the Financial Categories box on the right. Now select the expense you want to categorize by clicking the check box. Find the correct Financial Category on the right, and click it. That’s all it takes. Your transaction is now categorized, and will disappear from your list of Imported Transactions.

If many expenses fall into the same category, you can select them all, and categorize them with a single click.

(Note: Make sure you follow the steps above before categorizing transactions, as you will not be able to easily split transactions and calculate sales taxes after your transactions have been categorized.)

9. Repeat steps 5-8 until all expenses have been categorized.

10. Congratulations, you’re now ready for Step 3!

Need more help?
If you want more assistance, or if you prefer to let someone else do the work, we can put you in touch with accountants and bookkeepers from the Wave Pro Network. Find a Wave Pro.

Make your next tax year as pain-free as possible: Sign up for free online accounting for small businesses, by Wave.

Get ready to celebrate, you’re almost done!

Now that your information is in Wave and categorized, you’re ready to file your 2011 taxes! From here, you have two options:

Option A: Bring in a guest collaborator like an accountant who can file your taxes for you

1. If you need an accountant, and would prefer one who is already familiar with Wave, we can help! Contact us for a listing of small business accounting pros in your area. Once you’ve touched base with your accountant, follow the steps below to invite them to be a guest collaborator in your Wave account. If you have an accountant who would prefer not to collaborate online, you can email them your Balance Sheet, Income Statement, and Sales Tax Report from the Reports screen.

2. To invite a Guest Collaborator, go to Settings and select Guest Collaborators.

3. Click Add Collaborator. Fill out your accountant’s information, and select their access type (View Only or View and Edit), depending on your preferences. You may want to contact your accountant to let them know you’ve given them access.

(Note: Let your collaborator do what’s needed, but remember that you’re still ultimately responsible for the accuracy and timeliness of your tax filing.)

Option B: File your taxes yourself

4. If you will be filing your taxes yourself, there are three key reports you will be using: the Balance Sheet, the Income Statement, and the Sales Tax Report. You can access these by signing in to Wave and going to Reports. You may find it easier to print a copy of these reports, or you can work from your screen.

5. You’ll now be inputting information from these three reports into your tax software or tax forms. Wave doesn’t currently integrate with tax software, so you’ll be entering your totals into these forms manually. Make sure to double check accuracy, as well as local tax laws for your jurisdiction. Remember: You are responsible for the accuracy of your tax filings, so if you have any doubts, check with a tax professional before submitting your return.

6. Congratulations! You’re all done.

Need more help?
If you want more assistance, or if you prefer to let someone else do the work, we can put you in touch with accountants and bookkeepers from the Wave Pro Network. Find a Wave Pro.

Make your next tax year as pain-free as possible: Sign up for free online accounting for small businesses, by Wave.

Randall’s advice here applies specifically to Canadian home-based businesses. Other guest bloggers offer an American perspective. For professional advice in your jurisdiction, contact us to find an accountant or bookkeeper from the Wave Pro Network.

Randall Orser CPB, SACC

There are a number of great tax-deductions for home-based businesses that can be claimed by work-at-home moms and mompreneurs.

Technically, your mortgage payments and depreciation (or capital cost allowance) is one of those eligible deductions, but I generally discourage clients in Canada from using it.

Why? In short: You’ll pay for it later when you sell your home.

Here are the details:

Let’s say you use 10% of your home to run your home-based business.

Let’s also imagine that you bought your home for $400,000 (including renovations, selling costs, etc.), and now you sell for $600,000. If you have not been claiming a portion of your mortgage payments, the $200,000 difference is not taxed, because your home is your principal residence.

But suppose you’ve been writing off 10% of your mortgage over the years. In that case, 10% of this $200,000 gain — i.e., $20,000 — is now taxable as a capital gain.

Since the appreciated value of your home is one of the strongest tax-free ways of building your net worth, I suggest maximizing it by not claiming it for your business.

—Randal Orser was the first certified professional bookkeeper in Canada.  In the late 1990s he started his own business, Cascade Business Services, which was renamed Number Crunchers® Financial Services in 2007.  Also in 2007, along with Randall and Dianne Mueller, he started the Institute of Professional Bookkeepers of Canada in 2007.

Randall Orser CPB, SACC
Number Crunchers® Financial Services
Div. of Cascade Business Services Centre Inc.
Number Crunchers Blog
LinkedIn: Randall Orser
Twitter: @numbercrunchers
Google+: numbercrunchers
Facebook: Number Crunchers

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