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.