Sidebar: I am not a CPA, tax preparer, or tax professional of any kind. The advice I’m going to share below is from my experience as a business owner filing taxes for different types of businesses over the past 12 years. My suggestion is to consult a professional if you have any specific questions pertaining to your business.
One of the most stressful times of the year for me is tax time. I used to prepare my taxes on my own using tax software. I’d count all my income and all my expenses and try to make sense of it all and to be honest I was so lost. My friend, Heather, asked me for some tax advice last week since it’s her first time filing as a business owner. She mentioned that I should write a post about it (which is brilliant) so here I am! 😀
I know it can be really overwhelming and stressful to file your taxes for the first time when you’re a business owner. Here are some of my personal tips to try to alleviate some of the burden.
- Get to know basic tax jargon. If you’re an entrepreneur and plan on being one for a while you need to know basic tax terms. What is a 1099? A tax document that another business uses to report to the IRS that they paid you. You typically receive this from them if they paid more $600 or more in a year. What is a Schedule C? A document that is part of your tax return that allows you to show your profit and loss in your business. This is where you show your expenses and income. There’s more but start to familiarize yourself with these words and look up these forms.
- Save all your expense receipts related to your business. I’ll use The Good The Bad The Foodie as an example. We bought a tripod to use when we film – expense. We use a laptop of edit content – expense. Lighting equipment – expense. Camera – expense. The groceries we buy for filming – expense. The bowls and plates we use in our videos – expense. Website hosting service – expense. You get the idea right? Anything that is related to our business that we purchase I save the invoice or receipt.
- Save receipts and tax documents for at least 7 years. The last thing you want is more clutter. I feel you on this one. But when it comes to your taxes you never want to get in trouble with the IRS and not have documentation to back you up. Save your ITR’s (income tax returns) and receipts for 7 years. After the 7 years make sure you shred those documents and not just throw them away, it has personal info on it!
- Create a spreadsheet of expenses and income. If you don’t use Quickbooks or another accounting software then I suggest creating a spreadsheet to track your income and expenses. I’ll use my Real Estate business as an example. I created a document where I track every time I get paid so I know how much I made in 1 year. Then I created a second document that tracks all my expenses related to real estate. For example: Yearly licensing fees, associate dues, mileage from showing houses, lunch meetings with clients, cell phone bills, etc. If you make an effort to log in all that information at least once a month it’ll save you the time and head ache of trying to spend hours doing it right before taxes are due.
- Research what you can and can’t expense. A lot of questions I get are whether or not people can use a particular expenditure as an expense. The best thing I can say in this situation is write me a comment below and I can try to answer your question. If not do some research on the internet or ask a tax professional. I know resources for small business and solo entrepreneurs is a bit hard to find out there but the answer is out there! You just need to find it. I’m more than happy to help you if I know the answer. 🙂
- Put money aside in case you have to pay income tax. Let’s be real, y’all. Most people won’t have to pay income taxes the first year in business, but not everyone! Maybe you’ll be an overnight success! Maybe it’ll take a little longer, who knows. No matter what, I’d put money aside for paying taxes. But depending on what kind of product or service you sell, you should either put money away every time you get paid or maybe once a month. I personally put 10% away. For example, if I get sell a house I put 10% of my commission away. But if you sell products with a smaller price tag then you can transfer money into your savings every couple weeks or once a month.
- Don’t wait until the last minute. I’m not saying to wait until the very last day, but I’m also not saying to file on January 1st. Make sure you look through all your documents, receipts, 1099’s, or other tax forms together before you file. Have all your ducks in a row before you start doing the paperwork. I like to file the week before the due date just to make sure I covered everything but not at the last minute so I don’t have to fall in line at the post office. I also don’t want to file late to avoid penalties.
- Don’t forget your state taxes! I know everyone worries about their federal income taxes, but make sure you know the requirements for your state. When I used to use tax software it asked me at the end whether or not I wanted to file with the state of California for an extra change. I picked yes do I didn’t have to stress about it.
- At the end of every year, start to do the work. This goes along the lines of number 7. I never really do this, but I always want to. Check when taxes are due because it’s not always the same every year. Don’t waste your time putting all your documents together on April 12th if taxes are due on April 18th. Start to reconcile your accounts, finish off your spreadsheets, and file your tax documents away in a safe place.
- Hire a tax pro that you trust. I know many of you feel that doing your taxes is something you have to do because you don’t have the money to pay someone. But to be honest, it’s worth it. The peace of mind that a professional is taking care of it for you is worth th investment, at least for me personally. I knew how to file my taxes, I could probably do it, but it was so stressful for me. My good friend and CPA, Jenn, does all my business taxes as well as my personal. She is my absolute life saver! I trust her, she gives me advice and options, and is always there when I have questions.
Hope these tips were helpful and if there’s any way I can help please comment below! 🙂