Tax Time for the Small Business Owner

Tax time for the Small Business Owner can be stressful. The good news is that it doesn’t have to be that way! A little bit of organization and foresight goes really far!

**Disclaimer: I am not an accountant and I don’t play one on TV. This is not meant to be taken as accounting advice.

Hire a CPA: I highly recommend this one. Would you attempt to yank your own tooth out? I am all for professionals when it comes to the important things in life. It is not cheap, but it is worth every penny saved in fees, from possible audits due to mistakes and things you might overlook that a trained professional can spot and protect you from. Plus, a CPA can help you figure out deductions that you might not have otherwise noted. The way I look at it, the service pays for itself every year, saving me from headaches!

Create a physical file for the year: So much of what we do is electronic, and that’s great – and convenient, but don’t disregard hard copies. When it comes to something as serious as your taxes, you want to have hard copies of expenses, in case they are ever needed. There are many ways to go about this, just choose a system that works for you. I prefer an expanding file that I can keep it all in, in addition to my receipt binder and Excel file.

Catch-all Container: I know that we are all busy and that there are only so many hours in the week. I have a basket on my desk, in which I place any receipts/ invoices/ documents each week,  that I will need for my taxes. At the end of the month, I pick a day to go through it and make copies/ file/ enter into spreadsheets, etc. This way, I am not searching for receipts on that day, and it is out of sight and out of mind until I have the time to devote to organizing it all properly.

Excel is your friend: I create a new spreadsheet for each tax year, that tracks all of my gross income, broken down by a row for each source, and a column for every month of the year. This is nice because when you receive your 1099s at the end of the year, you can match them up quickly to make sure everything is correct.

If you use Paypal to receive any client payments, they offer really nice reports at the end of the year that you can print up and include in a file to send to your accountant.

Quickbooks: My business isn’t quite to the point where I feel that I need to add this to my system, what I am currently doing works for me, but eventually I will. I do use it on behalf of some of my clients to handle their bookkeeping and it works like a dream! As long as you set it up properly to what suits your business the best, it generates reports for you and keeps all of your income/ expenses together in one space. It is as good as the information that you enter. The other cool thing is that this would be a business expense!

Mileage log: If you have one, I highly recommend a small notebook in your vehicle, as well as using an app if you want, and adding another tab to the tax Excel worksheet you already have going. I say this, because one of my first years working for myself, I used an app, and solely an app… and then my phone crashed. I lost all of that mileage and couldn’t use the write off on my taxes. I don’t know about other areas of my life, but I sure learn quickly where money is concerned! Always have a backup. This also goes for your Excel worksheet. Back it up, print it and email it to yourself after each monthly edit.

Keep track of health insurance costs/ expenses and save receipts: Being your own boss is great… until it comes to taxes, and being taxed at a higher rate, and providing your own health care and retirement savings! When it comes to health insurance, track all that you spend if you provide it for yourself, not through an employer-based program.  Track it on your business expense spreadsheet and keep invoices and receipts for your CPA.

Organize those receipts, monthly: THIS is the biggest headache if you haven’t been diligent about this throughout the year. There are many different ways to go about doing it—an expanding file, manila envelopes for each month. I tend to favor buying a large binder with three-holed plastic paper protectors, and I place a label on each one with the name of the month, and then my receipts are filed away as soon as I am in my office. I label the spine of the binder with the year, and then it sits on my shelf and is forever accessible, should I need it.

Don’t wait until January, stay on it!: I try to find a Sunday at the end of each month, where I review all of my spreadsheets, enter any business expense receipts that need entering before filing, and matching things up against my most recent bank statement. Yes, it’s annoying, but it’s part of running your own business and it beats the heck out of scrambling to try to do it all x12, in January, when you’re still in a holiday daze and aren’t sure where those pesky receipts have gone!

Keep a list of questions for your accountant: I try not to email my accountant until I have at least a couple of questions (unless it is important or time sensitive) because A.) I don’t want to drive him insane, and B.) time equals a larger bill. Be sure to write them down, though, so you don’t forget them!

Keep a list of big-ticket things purchased for your business and any work-related educational/ travel costs: In general, I keep a list of expenses that I am unsure of so that I can check with my CPA to make sure if they are write-offs or not. This is another area where you don’t want to make a mistake!

Quarterly tax payments: If you work for yourself, you need to make estimated quarterly tax payments four times per year. I always send mine certified, and request the service where they return the date-stamped card back to me via the post office, so I know it was received. I make copies of the completed voucher, my check, and the envelope, so I have more than enough proof, and paper clip it all together along with my receipt from the post office that reflects the date it was mailed, to cover myself. Hold onto all of this to show your accountant so he/she knows how much you have paid out in taxes for the year. Another nice thing about hiring a CPA is that they help you determine what you need to be paying each quarter. You do NOT want to make a mistake on this, as you are penalized and charged fees if you do not pay the correct amount. You do not want to be paying too little! If you visit the IRS’s website, you can find the dates that your quarterly estimates are due, as well as the voucher forms that you need to fill out to send in with your payments.  Make sure that you mail these in with plenty of time to be received, or pay online, and keep an eye on the due dates if they fall on weekends or holidays, plan accordingly (and pay earlier) so that your payment is not late.

 Uh-oh…: If you do end up owing, the worst thing you could do is not file or hide from it. The IRS will figure it out, and when they do, there will be additional penalty fees and interest added to your bill. If you owe and cannot afford to pay, seriously call them and they will work with you. If you face the problem head-on and make a plan for the next year, things will get better!