Its that time of year again! You know the time that makes many small business owners cringe. Tax season! It can definitely become overwhelming being a small business owner if you are not organized. Here are some tips for how to have a stress free tax season from this point on.
When we started our business we did all of our accounting old school. When I say old school, I mean, we had 4 inch binders for each year. Every time tax season came around it was so overwhelming. We had to review everything and make sure that all of our T’s were crossed and I’s were dotted because the last thing we wanted was the IRS coming after us. We also missed out on so many deductions just because we had not kept proper record. We lost receipts left and right. All the extra stress was really do to lack of knowledge of resources that are available to help financial record organization easier. We want to spare you the headache.
“oh I just love tax season!” said no person ever…
1. Accounting software
This sounds scary, which is why I did old school bookkeeping for the first three years of our business. We use Quickbooks Online. There are many client management programs available that allow bookkeeping but none to the extent that Quickbooks Online does. It has saved us so much time and so much money. With Quickbooks Online you can take a picture of your receipt and load it directly to your bookkeeping. No more scanning and loosing of receipts , meaning maximum deductions. At the end of the year all you have to do is reconcile your books with the click of a button you’re done. Quickbooks Online will also keep instant calculations of your net profit making it easier to pay your quarterly taxes.
You can get started by clicking here Quickbooks Online .You will save between 20%-50% off your Quickbooks Online subscription when using this link.
2. How to pay your quarterly taxes
Pay your quarterly taxes to the IRS easily online. Be aware of websites that will serve as a middle man to process your payment and charge you a fee. If it doesn’t start with irs.gov/, then my friend it is not the IRS. Pay on time to avoid those ugly penalties. The payment schedule can be found here.
The last tip for paying your quarterly taxes is to pay the next tax bracket up. You’ll never have to pay the government backpay or penalties What does this mean? For example, if you fall under the 10% tax bracket pay the 15% tax bracket throughout the year. If you are in the 15% bracket then pay the 25% throughout the year. Why would I give the IRS more money? Wouldn’t I just save it? Well, because you WILL be successful and your business WILL grow you will set goals and EXCEED them. Don’t take the risk of underestimating. If you don’t pay enough during the year, you WILL have to pay it at the end plus the penalties.
Tracking your mileage is definitely something that can become overwhelming if you don’t have an efficient way to do it. Trust me! We missed out on thousands and thousands of miles because of how inefficient our system was in the beginning of our business. We have since used Mile IQ !
Mile IQ is an app that you download on your phone and it will automatically track mileage as soon as you start driving . You can also setup auto classification for common trips like a shooting site or post office etc. Accurate and reliable tracking makes it easy to capture a comprehensive mileage log. Your complete drive history is stored securely in the cloud making it easy to provide detailed mileage logs any time.
Why is tracking milage important? Because of the obvious deduction on taxes but also it is important to keep track how much your vehicle is used for business. Apps like Mile IQ separate personal from business mileage. This will determine how much of your car payment, auto insurance and car repairs can be a deduction. BAM deductions on top of deductions just because you have an efficient way to track your mileage.
If you use this link you will receive 20% off of your first annual subscription. You’re welcome 🙂 !
4. KEEP YOUR PURCHASE RECEIPTS!!!!
Keep Keep Keep your purchase receipts. I cannot emphasize this enough! The IRS can edit up to 7 years and if they find inconsistencies, they can audit your business from the day the doors opened. Since I take pictures and load them on Quickbooks from my phone as they happen, I also email myself the receipt AND I backup all the images on a hard drive. This is just incase you got hit with the worst luck and you lost everything on quickbooks and then got your email hacked into and couldn’t access it. Extreme, I know but I rather be safe than sorry. If your are extra obsessed like me you can even save the original receipts in a folder.
Purchase receipts are so important because they are crucial when it comes to SALES TAX. Yes my friend if you provide a tangible product for your client, a USB or a CD or a print then you are supposed to charge your clients sales tax for your service. If you don’t, you’ll have to pay it to the state in which you operate your business at the end of the month. And if you don’t do THAT, then you might as well close the doors because they will come hard after you with backpay and penalties.
Here is an example: I booked a client for wedding photography. Her collection includes a USB. The collection is $3500. I must charge her $3500 plus 6.5% (State of Florida sales tax). The sales tax is on the entire order not just what the actual USB cost. If I don’t, I still have to pay that 6.5% on that $3500 to the State of Florida at the end of the month.
5. The USE TAX many forget
USE TAX. This is where the purchase receipts come in handy. Anything you purchase to use for your business requires that you pay USE TAX. So I know we aren’t the only ones that buy equipment on AMAZON. Amazon won’t charge sales taxes the majority of the time. That doesn’t exempt you as a business owner from having to pay it. At the end of the month, you have to pay the state in which you operate your business, the sales tax you didn’t pay the vendor. This is why having receipts is crucial.
Lets say, I’m missing a receipt for something I purchased at the apple store. The purchase was a hard drive for the business that cost $400 plus tax. You know, and I know , I paid sales tax, but did you know that if I don’t have that receipt , Uncle Sam can make me pay sales tax on that item AGAIN! You have to provide proof that you paid sales tax for that item. Taxes is the one exception in our justice system where you are guilty until proven innocent. So if you are missing various receipts, you can imagine how quickly that can add up plus the penalties they will hit you with.
All in all if you are able to hire an accountant I highly recommend it so that you can put your focus on growing your business. If its something that is not in your budget yet, then considering these tips can definitely help you make sure your are maximizing on your deductions, bookkeeping accurately and that you have all your ducks in a row in case of an audit. Happy tax season and start this year off right so next year will be even better.