Tax season is the enemy of small business owners. Small business owners wear a lot of hats: accounting, marketing, sales – you name it. The small business owner often fills the void in his business.
TurboTax and other online services even allow owners with no accounting experience to file their taxes and take advantage of tax breaks along the way.
But there’s also the anxiety of:
- Gathering receipts
- Outlining all expenses
- Cycling through billings and invoices
Businesses that opt to pay taxes annually and incur the small penalty also worry about having enough money come tax season.
If you’re a freelancer or contractor, chances are you were more focused on staying afloat this past year than worrying about tax season. The mad dash to finish your taxes before the deadline probably took a few months off of your life, but the madness needs to come to an end.
It’s time to take the right steps to avoid the scramble next tax season.
1. Separate Business and Personal Accounts
A lot of businesses online rely on payment processors, such as PayPal, to help them accept credit cards online. These services make it super easy to start making money, and the small fee they charge is worth the cost in some cases.
The problem is that it’s easy to mix up personal and business expenditures if you have a debit card from PayPal or any payment processor for that matter.
It becomes a mess come tax season.
A few ways to avoid this mess are:
- Make only business purchases from the account, or
- Don’t mix personal and business expenditures in the same purpose
If you’ve ever purchased printing paper from Amazon that you plan to mark as a business expense, you know how easy it is to get dragged into buying a dozen other personal items at the same time.
Avoid this by doing one of two things:
- Make all business purchases separately from personal purchases
- Keep a business and personal account for proper expenditure separation
2. Implement an Automated System to Start Calculating Taxes
TurboTax offers a one-year free promotion this year that allows you to tackle your taxes throughout the year instead of the night before the tax deadline. QuickBooks Self-Employed (super cheap) allows you to easily:
- Separate personal and business expenses
- Maximize deductions
- Calculate quarterly tax estimates
- Create invoices
- Sync bank accounts
- View profit and sales reports
You can even take a picture of those receipts you have hanging around the house to keep them in a neat, digital file.
QuickBooks isn’t the only one offering these great software packages either. You’ll find plenty of companies offering simple and easy ways to start making sense of your income, expenses and deductions. You’ll also save a lot of money in the long-term and reduce that last minute scramble a lot of self-employed business owners face.
The cost is negligible when considering the time spent scrambling to account for every expense at the end of the year.
3. Tackle Tax Preparation Daily
In the ideal world, you’ll stay on top of your taxes 365 days per year. Daily accountability is easy thanks to apps and automated systems that make it easier to play the role of bookkeeper. The reason why you want to remain so diligent is simple: you’ll save money.
View taxes as trying to find a way to save money every year.
Businesses hate tax season, but it doesn’t need to be an arduous task that consumes your mind between January 1st and tax season. Get it done throughout the year so that your business is on the right footing come tax season.
If you’re too busy entertaining clients and playing too many roles already, make it a point to tackle your tax prep weekly at the very least. While it’s just another task you wish you didn’t have to tackle, unless you can hire an accountant to work for you throughout the year, it’s a task worth starting now.
You’re not going to be a professional accountant, but you can do your best to ease the burden of next year’s tax season today.
Also, make sure you make note of your expenditures, especially when entertaining clients. If you entertain clients often and bring them out to dinner, a portion of the bill can be deducted, but you’ll want to keep a ledger for the reason of the meeting and with whom you met.