5 Tips to Make Tax Time a Breeze

I have a confession: when I was in my first year of business, I was not as financially organized as I should have been. I am a Certified Public Accountant. I should have had it all together. But I was so focused on getting my business up and running that several financial-related items were pushed to the side. This made for a horrific tax season as I tried to get everything together.

Many of you may have experienced something similar, but don’t beat yourself up. It’s easy to get laser-focused on marketing and other tasks to grow your business—after all, you need to make money, right? However, following these simple small business tax tips will set you up for success come April.

 

 

Tip #1: Set up separate business bank accounts

This one is huge. So many entrepreneurs I know intermingle their business and personal expenses. Then at tax time, they have to go through all bank transactions and separate out their business items. You can save yourself a lot of time by going to your bank (I recommend you use the same bank you use for your personal accounts) and opening a business checking and savings account. The savings account will come in handy for setting aside business taxes. You can also open a business credit card if you like. Be meticulous about using these new accounts for your business transactions as much as possible.

 

Tip #2: Have a set time for your financial tasks

I also often see business owners neglect their finances. Months and months pass, and then they feel overwhelmed and don’t even want to look at their bank account. This is totally understandable, and one way to combat it is to have a set time that you deal with your business finances. Depending on the size of your business, once a week or once a month would be best—perhaps every Friday you spend an hour or so attending to any financial tasks. If you get in the routine, it will be much less likely that you neglect them.

 

Tip 3: Track as you go

Whether you’re tracking manually (on paper or using Excel) or you are using an accounting software like QuickBooks Online, it’s important that you record the necessary items so you can easily report them at tax time

First and foremost, you want to be tracking income and expenses. Income is any payments you receive, either from services you provide or products you sell. Make sure to track income by type. For expenses, track all business expenses in one place (again, having separate bank accounts will help), and categorize these by type as well. The different types of expense categories deserve their own post, but some basic ones are marketing/advertising, meals and entertainment, office expenses, payroll expenses, taxes and licenses, and travel.

Be sure to track the date, the person or company the payment is made to or received from, the amount, the type of payment (check or credit card), and any other relevant information (such as a description or transaction number) for each item. Having all this in one place will make it very easy to either fill out your tax forms or turn the information over to an accountant. Luckily, software such as QuickBooks Online can do a lot of the work of tracking these items for you.

 

Tip 4: Prepare for 1099s ahead of time

Again, I could write a separate post about 1099s, but I want to introduce the concept here. Form 1099 is a required tax form that reports payments you make to vendors to the IRS. The basic guideline is that if you paid a vendor more than $600, you will need to issue them a 1099 at the end of the year. However, there are a few more rules, so check with an accountant if you are unsure whether you owe a vendor a 1099. The 1099 due date to the IRS last year was January 31, 2017 for 2016 payments. (As a quick note, 1099s are only for services—if you purchase products, the vendor does not need a 1099.)

To save yourself some trouble at the end of the year, collect a Form W-9 from any vendors you work with that you think you might pay at least $600 to. (You can simply Google this form and send it to your vendors.) That way, when you prepare the 1099 at the end of the year, you have all the information you need.

 

Tip 5: Track deductions properly

Obviously we all want to maximize our tax deductions, but you have to be sure to track certain expenses properly. This is particularly important for deductions like the mileage and the home office deductions that require extra documentation. For mileage, keep a log of any miles you drive on behalf of your business on paper or using a mileage app. You’ll give this information to your accountant at the end of the year.

If you qualify for the home office deduction, be sure to track home expenses in one place. This includes rent or depreciation (if you own your home), utilities, cleaning costs, repairs and maintenance, and pretty much any other expense that relates to your office space. Track this all in one place, and your accountant can help you do the calculations.

 

I hope these tips are helpful. Please reach out to me if you have additional questions.

 

 

 

Jessica Mishra

Hi! My name is Jessica Mishra and I am the founder of Beam Financial Group, a full-service bookkeeping and consulting firm which supports Creatives and e-commerce businesses. I am a Certified Public Accountant, an Advanced Intuit QuickBooks Online ProAdvisor and a Registered Yoga Teacher. I love to support entrepreneurs in taking the stress out of managing their business finances.

4 comments

  1. I really liked your advice to keep a record of the different types of expenses that you make throughout the year, especially for meals and entertainment, office expenses, and and travel! I have a lot of work expenses that come out of my job, and I want to make sure that my end of year taxes are compensated for all of my business expenses!

    Reply
    1. Jessica Mishra

      Hi Ken! Definitely! If you incur business expenses you definitely want to take them as deductions 🙂 The more organized you can be during the year the easier it will be on you at tax time. Thanks for checking out my post and let me know if you have any questions. -Jessica

      Reply
  2. Hi Jessica,
    Your tip on keeping different bank accounts for different businesses catch my attention. Can you please elaborate on how a saving account can set aside business taxes? Or if there is any post on this, I will like to read it. Great Info.
    Looking forward,
    Rajesh

    Reply
    1. Jessica Mishra

      Hi Rajesh! Good question. This is not an easy answer as the amount you set aside for taxes is based on your personal circumstances typically (if you are a sole proprietor, LLC, or S Corp) but generally you want to set aside the amount you will owe each time estimated taxes are due (income taxes for federal and state). Some tax accountants recommend a flat rate of 25% or 30% of your income to be safe or you can work with an accountant to do a more accurate calculation. Either way being prepared with money set aside will allow you to be prepared when those taxes are due. Let me know if I can be of more help!

      Jessica

      Reply

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