I spent quite a bit of time in the last two weeks getting my personal finances in order (I generally do this once a year around tax time, and since I have an extension for living abroad tax time is October for me). My situation, which is already a wee bit of a mind-bender as a result of having accounts scattered in Japan and the US, is going to be made a wee bit more difficult next year as a result of the uISV I set up. Here is what I am doing to make this as easy as possible:
I got myself a credit card. I have always been a cash-only person in my dealing with American companies (interest! ick!), but I am starting to see the value of having a paid-in-full-monthly credit card. For example, I have dreams of eventually owning a home, and that is going to require some demonstration that I am a responsible credit risk. From the perspective of the American consumer finance industry my financial health is like that of a corpse, since the only activity for the last few years has been student loan payments. Anyhow, I got myself a nice little Visa to help that out, and since all of my business expenses are dollar-denominated I’ll have something to charge every month. Additionally, and crucially, with all of my business expenses and nothing else on one card it becomes very easy to file my Schedule C-EZ next year. Schedule C is the form American small business owners report their taxes on, and it essentially asks you for your sales and expenses (capped at $5,000). You pay taxes on the difference, at your individual income tax rate.
Its crucial that you be able to account for every dime you spent on your business, so that you can properly claim every dime worth of business expenses. Back when I started out I paid for my business expenses on my Japanese credit card, my American debit card, and through Paypal, and as a result my record-keeping was a mess. (I will seriously be reading my own blog when filling out my Schedule C, thats how bad it is to reconcile my credit card statements.) With everything on one card, all you have to do is pull your statements online and sum. This ensures that you don’t miss a single expense, because any expense you miss costs you money in taxes you pay but don’t owe. For example, if I forgot come next October that the previous October I had paid $29.95 for stock icons (clearly a deductible business expense for me), then I would end up paying my tax rate (call it 25%) on $30 of income that those stock icons should have offset. Thats $7.50 worth of idiot tax for forgetting a single transaction. Don’t pay the idiot tax, keep copious records in an easy-to-access place!
The credit card also allows you to smooth out cash flow issues. I get paid at odd times throughout the month, whenever someone buys my program and I transfer the money out of Paypal. My bills, however, come both at set times during the month (web hosting, e-junkie), variable times during the month (Goooogle), and periodically (software/services purchases). Having a credit card around lets me essentially reschedule those bills to come after I have had the sales to pay for them. (N.B. I have a day job, and the day job can easily cover all my business expenses without blinking an eye. However, the day job and the day job’s paycheck are on the wrong side of the ocean, and if my American checking account is dry when the Google AdWords bill comes that would be less than fun. I would eat an insufficient funds fee, a week of below-minimum charges on my checking account, and a bank transfer, wire transfer, and currency conversion fee for fixing that. So my credit card gives me a lot of piece of mind.)
I’m keeping paper files, too: I have always been a direct-to-digital person when it comes to dealing with my finances. However, to keep myself organized, I got myself a folder marked “BINGO TAXES” and have started feeding it three pieces of paper a month on the 31st: my copy of e-junkie’s sale tracking page, my copy of my Paypal account statement, and my copy of my credit card statement. That allows me to reconstruct income and expenses in about 3 minutes per month. Even if I were selling 10 times what I am now (wouldn’t that be nice), it would still be trivial. I also keep PDF printouts of these documents on my hard drive (side note: if you don’t have a virtual printer which exports to PDF, can I recommend PDFCreator, it saves me from having to have a printer at all) and will soon be backing them up somewhere else in event of a catastrophe at my residence.
