Making Tax Time Easier•
Posted on October 14 2021
If there is one piece of advice I can give to brand new small business owners, it would be this: OUTLINE & IMPLEMENT A PLAN FOR TAXES BEFORE YOU SPEND A PENNY OR RECEIVE A PENNY!
I am fairly confident that 75% of the small business owners who read this had this exact thought when they started... "I'll figure it out later". Then came the end of the year.... and figuring it out later was a hell of a lot harder than it needed to be.
Thinking about taxes can be very overwhelming, so here my top 5 pieces of advice:
1. Use one bank account or one credit card for all business expenses. Keeping your business financials completely separate from all of your other financials will make your life 1000x easier.
2. Use an accounting software and make sure you are keeping it up-to-date. I recommend Quickbooks Online - Small Business - Simple Start. It's $12 a month and will make your financials so much easier to understand. It connects directly to your bank account, credit cards, PayPal, etc and imports all income & expenses so they can be tagged properly. Most small business owners use the same vendors over and over again. In quickbooks, you can set up a rule that will automatically categorize any expense that is imported from that vendor so you don't have to do anything with it! Also, if you get to a point where you need a CPA to manage your books, they will be able to access your quickbooks and can do all of your taxes directly from there! *this is not sponsored
3. Know what expenses are tax deductible. If you are running your small business out of your home, then part of your household expenses can be used as a deduction. Use your vehicle for small business tasks, then part of your vehicle expenses can be used as a deduction. Professional development courses, continuing education, business trips, etc. can be used as a deduction. Click here for a great article that outlines a lot of different deductions small businesses are typically eligible for.
4. Use an envelope system to keep your receipts, but 99.9% of the time your credit card/debit card statement will suffice the IRS requirement as proof of purchase. I see a lot of people worry about uploading receipts and tagging them and organizing them and categorizing them... and it takes hours and hours each month to get receipts matched to purchases. 99.9% of the time, that is completely unnecessary because your credit card/bank statements show the information the IRS would need to confirm an expense if you were to be audited. I recommend purchasing a box of envelopes and a small tote. Every month pull out a new envelope and write the month and year on the front of the envelope. Put all of your receipts for the month in that envelope. At the end of the month put it in the tote with all of the past months envelopes. This will give you the piece of mind just in case you need them for anything without stealing hours of time from you in matching receipts to expenses in your accounting software.
5. Meet with a local CPA to find out what it would cost for them to manage your books and file your taxes (business and personal). You may be shocked at how affordable a CPA is.... and speaking from experience, it is much easier to be able to give this very important part of your business to someone who is an expert. The protection alone that you will be given is immeasurable. Many CPAs base their cost on how much work keeping your books will be. If you are a 5 figure business then your charge will probably be less than a 6 figure business, and a 6 figure business will probably be less than a 7 figure business.
If you have been in business for a bit and haven't gotten yourself setup to account for taxes properly, don't worry! It's never to late to get a process in place to make sure you and your business are protected from the tax man!