Tax season is upon us!
For some, that statement brings upon total anxiety. For others, it’s just another date on the calendar.
The April 15th tax deadline comes around on the same date every year (with the exception of 2020 because of COVID-19), yet it always seems to sneak up on us!
However, if you put some simple financial practices in place, April 15th will no longer have to be a stressful date for you.
In this post, I want to share 3 ways that Katelyn and I have helped stabilize our overall financial situation! I’ll be sharing resources that we use, but if you have any other helpful financial tips for your fellow entrepreneurs, please feel free to share them in the comments:
1. Track Everything
This one is super hard for creatives. Who wants to sit down and keep track of mileage, or balance a checkbook, or sort through receipts?
It’s much more fun to be doing things that grow your business, but if we let these things slip, it could mean a huge cost to your business in the end!
Personally, we love using Mint.com to keep track of our expenses. We link it to our business checking account and tag each expense with a different category. At the end of the year, I print off each category to see how much we spent on “Albums” or “Travel Expenses”, etc.
This system works really well and our CPA always compliments our record-keeping skills! Little does she know that it’s all automated and we hardly do anything at all…
Try to review your financials quarterly so that you don’t wait an entire year to make adjustments.
2. Use Client Management Software
One way to reduce your financial risk as a creative entrepreneur is to actually get paid!
Using a client management software for small businesses like HoneyBook allows you manage projects, book clients, send online invoices, online contracts and payments reminders—ensuring that you get paid for all the work you do in a timely manner.
The small cost of one of these systems will pay for itself many times over with the time you save chasing clients for payments.
3. Outsource Your Financials
This one is tough because it’s hard to spend money on things you feel you can do yourself—especially with a tight budget.
But let’s be real: I was a history major, not a math major. I took only math class in college and I only took it because it was required. It is easy for me to hand over payroll or bookkeeping.
One of the best resources you have for this is your local Tuesday Together groups. Ask people in the group who they use for taxes or bookkeeping. Because we’re not professional CPAs, this part of our business would end up stealing hours and hours of our time.
Remember: your time is valuable. We were actually losing more money by not hiring a CPA, because the hours we spent on our taxes could have been spent on client projects.
4. Learn About Deductions
Even if you do hire an accountant, they can’t just magically reduce your tax obligations after the fact. It’s much easier to save on taxes if you know what you can and can’t write off.
Next time you meet with your accountant, take time to learn about the tax deductions you or your business are eligible for.
For example, if you have a dedicated work space in your home, you can claim a percentage of your rent or utility costs.
This way, you can track deductible expenses over the course of the year.
5. Save for Tax Season
Like we said: tax season should never come as a surprise. Yet many entrepreneurs don’t set money aside for tax season.
Set money aside for your taxes throughout the year. Track how much you’re making and save a percentage for tax season. In fact, most accountants recommend saving at least 10% more than you think you’ll have to pay in taxes.
You may also want to think about setting up a line of credit that gives you flexible access to some extra cash in case of emergency.
6. Plan for Retirement
As I get older, I think more and more about retirement.
When Katelyn started the business 8 years ago, retirement was the last thing on our minds.
Being self employed can make it difficult because you do not work for a company that automatically drafts money to put into retirement. I talk with our friends who work for big corporations who have programs that will match how much they put into retirement and I think about how nice that must be.
Setting money aside for retirement has to be a decision that you make each year. About three years ago, we met with a financial advisor who sat down and talked with us about SEP Funds (Self Employed Pension Funds).
Now, I’m not a financial planner, so I’m not going to try to explain all of the tax benefits of this account in detail. However, the basic benefits of this account are that it allows our money to grow tax free until we reach retirement age and it reduces the amount of income tax that we owe each year.
7. Start now!
It took us a while to feel like our finances were organized and that we were being proactive with our retirement plans, but we’re happy we started financial planning when we did. It’s definitely a lengthy process to get right, so make sure that you take it one step at a time.
What’s important, though, is that you start now. The earlier you start planning ahead for tax season, the better.
I hope this was helpful, encouraging and motivating you to go out and tackle some of the areas of your business that may be less comfortable for you.
Let’s make the next April 15th the year that doesn’t scare us!
If you have other ideas or advice about some financial decisions that have worked well for you, be sure to leave them in the comments!