While there are individuals who instinctively understand the finer nuances of taxes (and as such plan year-round to make the process effortless and painless), many entrepreneurs will enter into March and April with utter dread, knowing tax season can be arduous and costly.
Though taxes, particularly those for the 2020 fiscal year, are merely a logistical glimmer resting in the back of your mind, bringing visions of W2s to the forefront right now can save you a world of hassle next year and all the years that follow. Starting the new year off right can help you make your 2020 taxes easier, and it may just help you check some resolutions (like to be more organized!) off your list. Put some of these tips in play to make next tax season a breeze.
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Determine how frequently you need to pay taxes
If you’re a small business owner or are self-employed, and you don’t have taxes withheld, then there is a good possibility that you need to pay quarterly estimated taxes. Sadly, many small business owners, freelancers, contractors, and sole proprietors fail to recognize this obligation, and even if they fully intend to pay all their taxes at the end of the year, they may still face a penalty.
The IRS has compiled a great resource for determining your obligations, and if you fall into one of the business categories above, you may want to verify your tax obligations. If you do have to pay quarterly, you’ll certainly want to factor that into your quarterly, if not monthly, expenses. Typically, quarterly estimated tax payments are due on the fifteenth of April, June, September, and January.
Keep things separate
When it comes to finances, it’s always best to separate personal from business. If you haven’t done that thus far, it’s important that you start now. This is particularly true when it comes to tax prep. You can separate finances by opening a business bank account and exclusively using it for your business needs. The same is true if you’re using a credit card for any transactions.
Related: Navigating Self-Employment Taxes and Income
Keep diligent records
Keeping accurate and up-to-date records is probably one of the most valuable practices you can get into, and that’s true for your tax obligations as well as your operational and financial obligations. However, importance doesn’t always trump practice, and some business owners fail to commit to a single system or practice regular bookkeeping duties.
Make it a point to set aside a chunk of your month and dedicate it to keeping your records and organizing your paperwork. It also helps to harness accounting and payroll software that can simplify the process. Freshbooks, QuickBooks, Wave and Zoho Books are a great place to start, to name a few. If you are going to use software, now is the time to start reviewing and testing it out before committing.
You can also use traditional record-keeping methods, be they digital (like Excel) or old fashioned (like a paper ledger), but if that’s your preferred record keeping option, you’ll want to make sure you adhere to the next tip.
Back up your info
I have vivid memories of sitting in my mom’s car and riding next to a pile of backup discs, something her boss made her take home nightly in the case of a fire, flood or theft. And while we’ve come well past the days of backing up our computers on numerous discs stored in shoe boxes or file cabinets, the sentiment behind the practice should still be alive and well in your business.
Keeping diligent records is great, but having a single copy on a single laptop or in a desk drawer can set you up for disaster. Thanks to cloud technology, storing your information externally is easy. As a bonus, you’ll be able to access your information from anywhere at any time.
Some software, like QuickBooks Online, is cloud-based, but if you’re not planning to implement accounting software, then you may want to consider using DropBox, Google Drive, iCloud, or any of the other popular cloud storage platforms available.
Keep your receipts
In reality, this should be part of your diligent record keeping, but because it’s different from your payroll and revenue, it’s worth mentioning separately. Meals, miles (if you aren’t taking a standard deduction), equipment purchases, supplies, etc. can be filed as deductions come tax time, but if you don’t keep your receipts, you may be out of luck. Capture every receipt, every time.
You can go the way of the backup disc and stick these in a shoebox, but your best bet is to use a receipt tracking app (e.g., Shoeboxed, Expensify) or accounting software that includes a similar feature (e.g., Wave).
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Consult an accountant
If you already have an in-house accountant, then you should be able to rely on him or her to get a lot of these tasks in order. But if you don’t, then you may want to consider consulting one, even if it’s only a few times a year. A qualified accountant can help you plan for and adapt to changes in the tax code as well as inform you about tax credits specific to your industry, or federal and state tax codes. In the end, meeting with an accountant can save you a lot of headaches and potentially a significant amount of money.
You may be tempted to keep taxes out of the picture until March or April, but if you really want to make the process a breeze, then the best time to start is now. Determine a feasible record-keeping practice, test-drive some accounting and receipt scanning software, and work with an accountant to solidify a path toward a no-hassle tax season and financial organization.
This article originally appeared on Nav.com by Jennifer Lobb
