The importance of good record keeping for freelancers

Usually I'm pretty good about record keeping.  I record every payment in an Excel spreadsheet as they come in, and create a PDF of the payment details if it's a PayPal payment or scan it if it's a check.  I do the same with expenses.  I've been doing this since I first started freelancing part-time in early 2005, and it has made tax time relatively easy every year.

Last year, however, I was BAD.  I stopped recording payments and expenses about halfway through May.  As a result I had no idea until last night how much I'd made for the year, and only vague impressions regarding which were good months and which were not-so-good.  (This was actually one of several things that I was slacking off on last year, but I'll talk more about that in a future blog post.)

What I learned last night is that when you don't keep up with the record keeping throughout the year, at some point it makes you pretty miserable.  I spent the entire day yesterday on getting caught up through December.  (I did start this year off by staying on top of it, so my 2011 records are up to date.)  The best I can say about that is at least I did it in February instead of on April 14th, but still, it was a brain-numbing process that I'd rather not have to go through again for a long, long while.

I still have to get caught up on the expenses, but at least that is a much smaller task.

So, my fellow freelance writers, take it from me — it is definitely worth your while to take a few moments to record it every time you receive a payment or buy something for your business.  I like to have two separate spreadsheets, one for income and one for expenses.  My income spreadsheet has a separate page for each client and a main page that that gives me a grand total, as well as totals per month.  My expenses spreadsheet is much the same, except that I have a separate page for each expense category on the Schedule C.

In past years, when I've kept up on my record keeping, tax returns have always been a breeze to do.  I've never understood why freelancers complain until this year, when I had to do all that work to catch up... and I'm still not done yet!

What about you?  Do you do your record keeping throughout the year, or do you do it all at tax time?  Do you have a system in place, and how does it work for you?