With tax season just a couple months away, it’s time to get organized and prepared to tackle this not-so-fun side of being an entrepreneur.
I know that taxes can be confusing and feel overwhelming, especially to business owners. I know that sometimes figuring out what can be deducted and how to file taxes accurately can be stressful.
But, spoiler alert, it doesn’t have to be!
I want to take some of that stress and anxiety out of tax season for you this year. Here are the four things you NEED TO DO now to get your business finances in order so you’re more confident and in control of your financial results and taxes.
1. Mixing Personal and Business Income and Expenses is a No-No
I get it. It’s a pain setting up a separate bank account. And in the beginning while you’re growing your business it just makes sense to use your personal account. But at the end of the year, this will only cost you more money. Either due to you missing deductions or if your accountant has to sort though it all which could significantly increase the cost of tax preparation.
So how can you fix this? Easy. Just open up a separate checking bank account and possibly a credit card account for your business. If you don’t have an LLC, it doesn’t even have to be a business account… you can just open up a separate bank account in your personal name that you solely use for business.
You can open up a number of online checking accounts within minutes. We love the Bluevine Business Checking Account. There’s no excuse not to make this happen!
2. Make Bookkeeping a Priority
A Forbes study showed that 93% of small business owners overpay on their taxes due to missed deductions and lack of bookkeeping. Soul crushing, right? Bookkeeping is not overly glamorous, but it is essential in business and tax planning. You cannot even begin to plan for tax season, implement tax saving strategies, or let alone make sound business decisions without knowing your income, expenses, and taxable net income.
It is absolutely necessary to have a system in place to track your income and spending month to month. And luckily it doesn’t have to be a super complicated system. You can do this on your own with a simple spreadsheet or bookkeeping software, or you can outsource it to an accountants like us. But at the end of the day, a system needs to be in place!
Not sure where to start? Download our free Accounting Checklist! Or if you’d like a step by step guide on how to implement your own bookkeeping system, with templates included, be sure to check out our Fearless Finances Workshop.
We are big fans of QuickBooks Online. I use it for my own business as well as for all of our clients. If you want to a 30% discount for 12 months, check it out here!
3. Pay Estimated Quarterly Taxes
When you’re working for an employer, it is their responsibility to ensure that federal and state taxes are withheld from your paycheck. However, if you’re an independent contractor, freelancer, own your own business, or do any income-producing side hustle, the burden to pay Uncle Sam is solely on you.
Skipping out on those quarterly estimated tax payments can be costly. Not only can you get slammed with a huge surprise tax bill at the end of the year, but you may also get charged interest and penalties for not making quarterly estimates.
But if you haven’t made any quarterly payments yet, don’t freak out. Just start now. A very, very rough estimate is to take 30% of your business net income and send it to the IRS. If you want to learn more about quarterly estimated taxes, check out my post here! This is also another topic that we discuss in the Fearless Finance Workshop!
4. Just Do It
Not next month. Not tomorrow. Today. RIGHT NOW.
I know each month you’ve been saying you will start tracking your business expenses better. And each quarter you say you should make tax payments. But it’s stressful and overwhelming, so you keep pushing it off. I totally get it.
But you have to do it. It’s kinda the law. So just dive in and get started. Use these first three steps as your checklist. I promise when you are done you will feel like a freaking CFO.
But if you know yourself and you know you are a creative genius, but not exactly a tax guru… just outsource this stuff. Talk to a CPA. I promise the money you spend will be worth this burden being taken off your shoulders as well as the tax savings that keep more money in your pockets.
Case in point: Chris Guillebeau, author ofThe $100 Startup said, “When it comes to taxes, I’ve always been honest, but I haven’t always been organized. For several years I did my own returns–not a great idea, since I overpaid by failing to take advantage of available deductions. Turning things over to a CPA helped save me money.”
If you have any questions heading into tax season, feel free to reach out to us!
