Organizing for taxes and beyond, Part 1: Breaking out Quicken

This weekend I told my newsletter subscribers that I was starting up on my taxes.  Since I have about three months left, there's plenty of time to try to do it right, and set up an organized set of financial records in the process.  I'm starting with a lot of financial statements, a whole box of receipts, and check registers.

This series of posts, entitled “Organizing for Taxes and Beyond,” will follow through the process I use, warts and all, to gather my financial life into some semblance of organization so that I can track our family's income and expenses so that we can make concrete, realistic goals.

The tool I'll be using is Quicken Rental Property Manager.  (I have the 2010 version but the 2011 version is the current one.)  My goal with entering my financial data into Quicken is to enlist its help as much as I can for completing my 2010 taxes.  Since I became a landlord this past year, I'll be needing to fill out more tax forms in more places, so any help I can get from the software will make things easier.

The rest of this post will step through how I constructed the accounts I needed in Quicken by entering my 2010 transactions from our primary checking account.  Sleeves are rolled up, so here we go!

1. Created a new Quicken file, and created the primary checking account with the starting balance as it was at the end of 2009. Faced with having to import everything from the past year into Quicken, I started with our primary checking account.  Transactions from this account touch a large majority of the rest of our accounts, so if I can manage to enter the transactions properly for that account, I've gone most of the way to setting up the rest of the accounts as well.
2. Started at the beginning of 2010, and began entering transactions from the checking account statements. Now it's just a matter of getting to work: start at the beginning and move forward.  I enter as much about the transaction as I can from the account statements and the check registers.  For checks written against the account, as well as electronic fund transfers (EFTs), I tried to get the payee and the expense category correct (in addition to the amount, of course!)  If I didn't know for sure, or if it was possible that the expense could fall into more than one category, I categorized the expense as “Not Sure” — yes, there is a category called “Not Sure” in Quicken! — or I noted this in the memo section of the transaction.  I'll work on figuring out these missing pieces of information later from the receipts.
3. When I hit a transfer into, or out of, another account that I wanted to track, I created the account. The first month's worth of checking account transactions took most of an evening to do, because one transaction could trigger the creation of several new accounts (in Quicken).  My first three transactions of 2010 were (a) a mortgage payment, (b) a Prosper.com transfer, and (c) an ING Direct transfer.  The first transaction triggered two accounts: an asset account for the house, and a loan account for the mortgage against the house.  The second transaction triggered creation of an account to hold Prosper.com loans.  (This account is now a “placeholder” account; I track transfer of money into and out of the account, but do not track the individual loans yet.)  The third obviously required creation of an ING Direct account.
4. I created accounts, but I didn't enter any other transactions that didn't involve the main checking account. To keep things simple and straightforward, I didn't enter transactions that didn't involve the main checking account.  This means that all of the accounts (except the main checking account) will have an incomplete set of transactions when I'm finished entering the transactions for the main checking account.  This is all right.  I'll revisit all of the accounts to enter transactions.  It would take too much time to shift gears entering transactions for a bunch of different accounts.
5. I took the time to track the details of my paycheck. I could track only the net pay from my paychecks, but by tracking all of the taxes and deductions I can have Quicken do some heavier lifting with tax preparation as well as report creation for retirement accounts and flexible spending accounts.  Saving my paycheck as a “scheduled transaction” in Quicken made editing later paychecks fairly easy.
6. For credit card payments from the checking account, I created the credit card accounts, but held off entering purchase transactions for those accounts. Again, I didn't want to get sidetracked, so I followed the reasoning as in Step 4.  I have credit card accounts that have large positive balances (I've made payments from the checking account, but haven't entered any purchases!)  The purchases from my main credit card will be entered after I've done the transactions from the checking account.
7. After entering six months' worth of transactions by hand, I downloaded the rest from my credit union's website. Six months were all that was kept, but correcting the imported transactions and recategorizing them was pretty quick by comparison.  I rocketed through the last three months of the year.

Now, I have a fairly complete set of transactions for our primary checking account, and have created accounts for many other linked areas of our finances.  The next task will be to enter the transactions from our primary credit card.  It's this account that will contain the large majority of our spending transactions, and it will be the topic of the next post in this series.