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I've read many articles and texts over the years about running companies and personal finances. Every time, I sink down in my chair, mentally exhausted from the utterly confusing, cryptic material I've attempted to digest. And so I yet again forget about doing whatever I was going to do, such as running some kind of business.

I have a fear of getting sent to prison.

If I simply create a database table on my computer, with three columns: "label", "amount" and "timestamp", where I input every single amount I either get or buy (using minus on the amount fiends to denote the rows which correspond to the latter), with a short description such as "Food from X" or "Money from ad deal for Y", and really stick to this, will I be "safe" in case I ever get into some kind of financial trouble?

Would a court or the cops be content if I were to give them a "dump" of this table, perhaps formatted according to some standard format that they tell me, but containing nothing more than the three fields I mentioned?

Is there perhaps some kind of service which could automatically "calculate the taxes" or whatever if I just hand them my "financial log" or whatever it should be called?

My brain truly seems unable to comprehend how to "fill out tax forms" or anything related to the entire economical system currently in place world-wide. On the other hand, it is capable of creating such a database and to output it as any (open) file format or printed on paper.

Would not this at least show some kind of "good faith" if I ever find myself in trouble with the law for failing to send in some report or form or whatever?

PS: I'm not joking about my brain not being made for this. I actually like databases and numbers and money sums and the idea of keeping track of them like this, but "everything else", such as complicated (or any) rules for how to actually "use" these numbers are way beyond my ability to think. (Beyond me just finding it to be "deadly dull", which is also true.)

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    The context isn't clear here, why would you need to supply cops with transaction details? I initially assumed this was in regards to a small business, but the cops/court and food things sounded non-business related. Is your question: what's the bare-minimum bookkeeping required for a small business? Also would be helpful to know which country you are in.
    – Hart CO
    Jul 6, 2020 at 17:14
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    What is this "bookkeeping" for? Do you have a business that you run?
    – Ben Miller
    Jul 6, 2020 at 18:19
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    "Bookkeeping" is not a legal requirement for most small non-public, non-incorporated businesses. It's paying taxes they care about. The bookkeeping allows you to claim deductions and provide proof of validity if ever audited. Just hire an accounting and bookkeeping firm. It's like 400 to 500 a month and they should do most of it.
    – user26460
    Jul 7, 2020 at 2:48
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    For personal finances, in the USA, if you are not doing anything unusual, you are unlikely to need to write down anything at all. The system is generally set up so that other people mail you forms, and all you have to do is give those forms to your accountant (or enter them into your tax software.) There are exceptions to this, but they are either uncommon (cryptocurrency) or typically ignored because nobody follows them (use tax). If you wish to run a business, you will not be able to avoid getting some kind of accountant (if only to file the taxes) -- then they will be a good person to ask.
    – Glenn Willen
    Jul 7, 2020 at 3:27
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    @26460 Legal requirements vary by legislation.
    – glglgl
    Jul 7, 2020 at 10:07

4 Answers 4

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If you're not comfortable "filling out tax forms" then hire a Certified Public Accountant (CPA). Depending on how easily they can convert your records to actual income statements, it may not be that expensive, but if you just hand them a list of transactions and make them categorize them it will take more time. It may be cheaper to hire a bookkeeper (even on a contract basis) to review your transactions once a month and organize them so that you don't waste time filling out tax forms.

Note that "courts" and "cops" aren't really concerned with your bookkeeping - it's the Internal Revenue Service (IRS) that will make sure everything is accounted for properly. You likely won't go to jail just for being incompetent; only deliberate acts like falsifying records or not paying your taxes are criminal acts. The rest will just cost you money and time to clean up.

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    This is the answer. For the original asker, I just want to relay that I'm a self employed person who keeps an in/out record like you describe in a spreadsheet. I pay an accounting firm about $600 a year to take care of all my tax stuff, it's so painless. Before I had the accountants I tried to do it all myself, made mistakes, put off deadlines, overpaid often and paid late fees and interest charges too. It's not worth it, just call an accountant, they are affordable!
    – Cameron Roberts
    Jul 6, 2020 at 18:26
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    Yeah, there's a reason why there are professional accountants and bookkeepers and tax preparers and why businesses employ them, whether as dedicated in-house employees or contractors that work for many firms: they provide a service to handle all this stuff so you don't have to think about it. And when you hire them, they can tell you what kinds of information they need to do their jobs so you can provide it in the most useful format instead of your database schema.
    – Zach Lipton
    Jul 7, 2020 at 2:13
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    The IRS doesn't want to send taxpayers to prison, they want them to pay taxes. To that end they'll give you a lot of leeway if you're cooperating with them.
    – IllusiveBrian
    Jul 7, 2020 at 13:53
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    I think it's worth emphasizing that merely having a database of transactions is not a substitute for filing taxes nor will it protect you from penalties for failing to file taxes.
    – Eric
    Jul 7, 2020 at 16:14
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    And if anyone REALLY wants to dig in to your finances (for example, in the event of a serious lawsuit or criminal case), a forensic accountant will be the one to make sense of whatever bookkeeping scheme you use. Note that this might very well be done at your (quite substantial) expense.
    – Kryten
    Jul 8, 2020 at 14:38
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You've got a couple of things going on here... and I'm not sure all of it is financial.

First up, the big one:

"I have a fear of getting sent to prison."

Uh, no. You don't get thrown into prison for messing up your taxes. I've messed up my taxes twice. Want to know what happened? I got audited... and then had to mail the government a check for the difference.

That's all.

The IRS isn't looking to send people to jail - they're looking to simply collect taxes. An extremely small number of people are sentenced for tax fraud - about 600 per year, in a country of 360 million. It's also not something you can do on accident - it's deliberate/intentional/willful.

Next:

"Is there perhaps some kind of service which could automatically "calculate the taxes" or whatever if I just hand them my "financial log" or whatever it should be called?"

Yep. There are businesses that will take care of this for you. Honestly, the easiest thing may be to simply google '[Your location] Accountant' or '[Your location] CPA' and schedule a consultation with them - just talk about what you're thinking about. They'll tell you the best way to proceed from there. Because, honestly, I think half the problem you're dealing with right now is uncertainty/worry, and talking with one of them would help alleviate that.

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    I think this is the best answer because you addressed the real issue: OP's anxiety over taxes preventing them from starting a business
    – elrobis
    Jul 7, 2020 at 14:13
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    To be fair, only about 100M of thre US population are subject to federal income taxation. But still, 600 on 100M is a tiny proportion.
    – user26460
    Jul 7, 2020 at 14:50
  • Things may be different if you're responsible for a large company and can't find 2 billion euro, but then such company probably hires staff with more financial skills and experience than the OP.
    – gerrit
    Jul 8, 2020 at 8:09
  • Was there also a fine you had to pay in addition to the difference?
    – user253751
    Jul 8, 2020 at 8:45
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    @gerrit I think wirecard definitely falls under the "deliberate/intentional/willful" part.
    – Voo
    Jul 8, 2020 at 12:02
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A business is a team effort

Your log is just fine for your part of the bookkeeping job, as long as you keep it honestly.

Your bookkeeper does the bookkeeping, all nice, neat and to GAAP standards. Filing taxes (not your job) is as easy as plugging in numbers out of the bookkeeping.

I’m not intimidated by anything, and I do bookkeeping... too much. However I work better when I’m not doing bookkeeping and focusing on the stuff that makes the business win. As businesses get bigger, this becomes mandatory. You don’t think Elon Musk or Jerry Yang do their own Quickbooks, do you? LOL, of course not, they have people to do that.

And the good news for you is, those people are much cheaper than you think they are.

In fact, I’ll make a bet. I bet you do not personally file your own personal tax forms, tabulating the income and expenses, hand writing the numbers onto the tax forms, and mail them in on paper. I bet you sit there on your computer, frazzled and stressed out, and go to TurboTax or H&R Block or some equivalent and try to find the numbers it asks you for. Now if you make enough money to think about opening your own business, I bet you’re paying way too much taxes because you’re missing deductions you’ve earned. Getting a bookkeeper to handle both your personal and business taxes may well pay for itself.

Certainly, “taking that load off your mind” will free your mind to do a better job pursuing your core business, and make more money.

Master yourself.

Understand that every human being has very strong feelings about money. There is mental programming burned into your brain even stronger than politics, and it is mostly subconscious. It’s placed there in childhood years, and from observation and experience (not book teaching).

People can be very powerfully affected by that, to the point where dealing with money in a certain way offends a values system they don’t even realize they have. Say, someone as a child watched money tear the family apart - endless fights, a gruesome divorce that was largely about money, etc. If that person values family, it’s gonna make them subconsciously think of money as toxic - and they may well “push it away” - not taking financial opportunities (“who needs it”), pushing money out of their wallet and bank account (“there’s never enough”), etc. Ironically they set themselves up for the same problem!

So with all due respect... when a smart person is inexplicably blocked from being smart with money, it’s worth looking into what might be behind that. The takeaway is that is very fixable, but the fix is not in our bailiwick here on money.se.

Trust me that accounting will make sense. In the meantime, take your lessons one at a time. Trying to gulp down a bookful of lessons in one go, is probably a bad idea anyway.

Don’t be evil

To stay out of jail, it’s that simple. Do your level honest best without being sneaky or clever. Don’t do anything that would cheat another person, including your fellow taxpayers. Don’t do sneaky things like pretending a huge flatscreen TV is a business expense. Keep it clean and honest, and jail becomes an impossibility even if you make honest mistakes.

Lesson of the day: keep finances separate

The takeaway for today is that you must think in terms of wearing two hats. Your personal life is your personal life. Your business life is a completely different “life”. The two do not mix.

It’s sort of like being a trustee. If you had a family member who had a mental disability and could not manage their own financial affairs, and it became your job to do that, then you would use their money to pay for their stuff. And your money to pay for your stuff. If your cable bill was due, you wouldn’t grab the trustee checkbook to pay it; that would be stealing.

You have the same mentality toward your business. Dolbier Widgets Unlimited gets a totally separate checkbook and credit cards. Pay cable bill with personal money, never grab the DWU checkbook to pay a personal expense. Likewise never pay for business needs out of your own pocket.

If you need to add money to the business, your bookkeeper will tell you how to do that. If you want to take profit from the business, again, your bookkeeper will tell you how to do that.

When you do that... and your business gets to a certain point, you can ask your bookkeeper to “throw a switch” and give you a liability shield. That makes it almost impossible to sue you personally due to problems with your products. In order to throw that switch, you must already be doing the above.

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    Mostly a good answer, just one clarification: "Your log is just fine for your part of the bookkeeping job, as long as you keep it honestly." - this is only true if the original receipts/invoices are being kept as well. Otherwise important information like the amount of tax paid/charged in those transactions and potentially any tax-related identifiers or exemptions noted on the receipts would be lost. (E.g. in jurisdictions with a value-added sales tax scheme (VAT/GST), the amount of sales tax paid is a different deduction from the main expense.)
    – Stobor
    Jul 8, 2020 at 1:57
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    Agreed with Stobor. The best thing to do is not to invent your own log format, but to ask the bookkeeper you hire what information they need and how best you can arrange it for them.
    – Zach Lipton
    Jul 8, 2020 at 3:20
  • Confused about the liability shield. How can it be impossible to sue the OP for problems with their products? Volkswagen and AUDI ex-CEOs are in jail.
    – gerrit
    Jul 8, 2020 at 10:00
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    @gerrit a recurring theme in my answer is honesty, I.e. my answer is for an honest business person. The liability shield doesn’t stretch so far as to cover intentional crimes! Hence, hedge words like “almost”...
    – Harper - Reinstate Monica
    Jul 8, 2020 at 13:37
  • The difference in scale is also important, I think. When you are a public company the size of Volkswagen, and the company does something dishonest, the CEO has a certain amount of responsibility about that even if they didn't give the order. Part of your role as CEO at that point is ensure that the company's culture and internal controls are adequate to prevent that kind of behavior (rather than merely not committing it directly yourself.) I don't think that kind of thing comes up at the scale we're dealing with here.
    – Glenn Willen
    Jul 8, 2020 at 21:44
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I mostly agree with everyone here, but just wanted to add: if you do have a business, there are accounting rules you have to follow for the business, including an adequate accounting system that enables you to correctly comply with all applicable laws.

If your question is simply about your own personal taxes, then as folks have alluded to, if you're an employee, you'll get a tax form at the end of the year that is necessary for reporting and paying your taxes.

If you don't have a business, but you receive income other than W-2 income, then there are a range of applicable rules that may apply, in addition to what your bookkeeping system looks like.

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