Tips on Taxes
This post is not a guide. It’s not legal advice. It’s not even really financial advice. It’s more of a commentary, really. A lot of people don’t talk about money and it’s pretty silly. I meet a lot of self-employed individuals and most get pretty quiet when the conversation moves towards finances. I believe in keeping some things personal but I have no problem sharing what I’ve learned – especially when it comes to taxes (yuck)!
Since I’m technically a sole proprietor (and not a LLC or Corporation), my taxes are filed a lot like they were before I owned a business (so keep in mind that I’m speaking from that experience). Perhaps you’re doing this for the first time or maybe last year was confusing. Here are 5 tips to making tax season a little less stressful next year:
- Open a bank account/Paypal account/Credit Card in your business’ name! All expenses should be run through these exclusively. Don’t use your personal accounts. It will only cause headaches later when you’re trying to sift through it all.
- Use software that will connect to your bank accounts + credit cards. This will allow you to document every time you make a purchase and every time you make a deposit/payment. It will help you (or your accountant) tremendously. I use Xero through my accountant (Upsourced Accounting) and it makes it SO incredibly easy.
- Pay quarterly taxes! This year was the first year that I paid quarterly and it is SO much better than paying one large lump sum before April. You can decide how much you pay quarterly by looking at last year’s tax return or by estimating how much you think you’ll make in the upcoming year. I had my accountants figure out all those figures and I can even pay electronically now. So simple.
- Don’t buy things just because you can write it off. Writing something off is great – but it’s only a discount. If you buy a $2,000 computer, you’re essentially getting $600 off. Do you have the money to buy a $1,400 computer? If not, don’t fall into the trap of assuming the write-off is worth it.
- Put away (around) 30% of your income religiously. The first year I was a business, I would sometimes forget to put away 30% every time I got paid. Once tax season rolls around – you don’t want to be scrounging for cash to make up the difference.
I would highly recommend hiring an accountant or CPA to help with your finances if you can afford it. The peace of mind is totally worth it. I would suggest, however, finding help with someone who really fits your needs. My accountants bill monthly and provide bookkeeping, invoicing and monthly reports. I don’t have to worry about getting a bill every time I email them with a question!
If you’re making more than $400/year – you need to claim that! Just remember – as you start to owe more…it probably means you’re making more money. And while writing huge checks to the government might not seem pleasant, I try to remember that I’m really blessed to be working for myself full-time.
A Consideration
A weekly email where I share things that made me stop and consider. Never sponsored, no affiliate links.
Comments (12)
-
-
Every time I get paid, I put 30% away into a savings account. No matter what. Then as Quarters 1, 2, 3 and 4 are due, I pull the total amount due into my checking and it pulls after my accountant submits the electronic paperwork. Every paycheck should have 30% pulled (and like this year, I learned I should probably be pulling 33% instead).
-
-
-
Thanks for always being willing to share business advice! I can’t believe its already tax season!
-
-
I don’t know why I hadn’t thought of setting up a PayPal account for my blog. That’s pretty genius. Up until now I have just been (not so well) keeping track of deposits from various sources. It will be so much easier for me now. Thanks for the great tip, Allison!
-
I just opened the business Paypal this year and it’s SO much easier. Paypal doesn’t like to make things easy so this sort of prevents having to sift through everything. I use my personal Paypal account SO much so it was a headache.
-
-
i now do all of the above…and have one of my good friends (who happens to be an accountant) do my taxes…easy peasy! but, man, the first couple of years were a hot mess. lol.
-
-
Still enjoying the pre-tax period at the moment (still a student!), but I help my mum quite a bit with her accounts I think that putting away money per month mandatory would be undeniably useful. Thank you for the advice!
-
Love this post, some very interesting points indeed! Just wondering wether you could tell me what typefaces have been used on the picture? Thank you.
Trina | BeginnerBeans.com
Thank you for being that person to share your experience. Taxes have been SO easy in the past, I’m a little sad to see that transition as I take on more freelance work. Quick question: Do you hold aside 30% of what you make in addition to the quarterly taxes you pay?