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Before we dig in, I just want to remind you all that I am NOT a tax professional. There are so many rules & regulations to this that I highly recommend seeking a professional for any questions that you may have. This post just touches on some of the information that would be beneficial for others. This information (unless otherwise stated) is taken from the IRS website itself.
The date now is January 27th which means tax season has already started. For some of you, I’m sure this is a joyous time. You can invest your money back into your company, finish paying off bills, or just blow through it.
If you’re like quite a few business owners, this time of year is a reminder of the money you owe to the IRS. And the IRS don’t play ‘bout their money! ** For my grammar buffs, I know this sentence isn’t right. Just roll with it lol.**
What if I told you there was a way to prepare for tax time? No, pretending taxes don’t exist throughout the year won’t help you. The post will at least help you identify what you need to watch for and how you can keep organized year-round.
Paying Estimated Tax
Are you earning money with your business? Then you need to make sure you budget out for taxes. If you remember my last post, Finding the Right Price, I briefly talked about setting aside about 30% of my gross income each month that went towards the estimated tax.
The IRS divides the payments into 4 payment periods throughout. If you miss a date, you may owe during tax time. If it makes it easier for you, you can pay weekly, bi-weekly, at the end of the month, etc. Just make sure to have the full payment by the date listed on their website. If you want to learn more information about this or how to submit payments, go here.
Sometimes, there is a little confusion about what we as business owners can deduct. I used the definition from the IRS website to help define what they mean.
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.
To sum it up, in order to be deductible, the expense must be something that is necessary to run your business. Remember those applications, processing payments, etc? Yes, they are deductible. Here’s a short list of some things you can deduct on your taxes.
Your business applications
This includes your CRM’s (like Dubsado is mine), Email Marketing System, etc
Payments you made towards marketing
Were you a sponsor and received some form of marketing? Facebook ads? These are a couple of things you can deduct.
Do you use coworking spaces? Work from home? These count! If you work from home, you will have to do some math to figure out how much you can claim.
If you use your car for both work and personal, you will need to document your mileage for the times that you used it for business.
Business Start-up Cost
Payment Processing Fees
Independent Contractors (1099)
I know this is not a complete list, but you get the idea.
Keeping up with Taxes
There is no wrong or right way on how you want to keep up with paying taxes. I personally set reminders in my phone and I use Quickbooks to keep an eye on it.
Others I know use envelopes and receipts to keep track. Some use an excel spreadsheet. It is really up to you. If you are wanting a new method. Here are a few of my suggestions.
You honestly can’t go wrong with Quickbooks. It does almost everything you need to manage your finances, taxes, expenses, and more! You can even file taxes, depending on which plan you choose. Most bookkeepers I’ve come across require you to have Quickbooks, so you would already be ahead of the game when you’re ready to outsource this portion out. I personally use the Self-Employed plan which is $10/month. If you use my code, you get it for $5/month (not including tax) for 6 months!
Remember this application from my Resources blog? This one isn’t as robust as Quckbooks, but it gets the job done! Best of all, it’s free! If you aren’t quite ready for Qucikbooks, then I recommend that you check out WaveApps.
Business Expense Tracker- *Small biz Alert*
This next recommendation is from a local small business owner Victoria of Account on Me. She is an accountant and she created an Expense tracker for those that aren’t ready to outsource, but still want to find a way to keep track of their expenses. You can view and purchase here.
Do you have any tips, questions, etc? Be sure to leave them below!