With only 4 days until the end of the year, its time to start thinking about taxes! If you’re in the same boat as me, you may be looking for tax tips or have questions. Another one of my hats, is being an accountant. So, lets talk Taxes!
1. Keep separate records of personal and business items. It is important to keep personal and business separate. I personally have a separate bank account that I use to track my business expenses. I find this to be the easiest way to get ready for preparing my taxes. Otherwise, I would have to go through all of my bank statements and every receipt to keep up with business expenses. I also have income received from my Square reader or my business directly deposited into my business account. This way I’m using business money to incur business expenses. It gets complicated when you mix the two. One of my motto’s is to “Work smarter, not harder”! Keeping separate records will ensure you will save time and energy when it comes time to file your taxes.
2. Find a good accounting software program. Depending on the size of your business, this may be optional. I use QuickBooks and find it to be very helpful. I can link my bank accounts and credit cards to my business and Quickbooks can extract financial information. Voila! Easy! Example: If I purchase supplies using my debit card, I can go into Quickbooks and tell it that this is a business expense. At the end of the year, Quickbooks will summarize all of my expenses into categories that will be used on my tax return. Another good thing about Quickbooks, is that it is very affordable. They have a free trial membership and a small monthly fee after the trial ends. They even have a mobile app that I use on the go.
3. Stay organized all year. This one may not be the easiest one to follow. But I have learned from experience, organization is the key to smooth sailing at tax time. Some entrepreneurs have home offices, but instead of that and the strict IRS restrictions and documentation that may be required, I use the space I have to my advantage. I use file folders for paper receipts, inventory tracking and customer information. I keep my records in a small filing cabinet I have had for decades. I also use electronic records with Excel files. If you stay organized along the way, tax preparation is easy. But on the other hand, if all you have is a box of crumpled up receipts, you may have difficulty summarizing your information into what the tax forms require. Keep receipts organized by the type of expense, such as supplies, travel, inventory, etc. Also be familiar with the expenses the IRS allows and don’t save receipts for something that is not allowed. For example, for travel expenses, either mileage or actual expenses are allowed. If you save both information it could be overkill. Unless of course, you want to compare the two and maximize the tax implications. Find a way to stay organized that works for you and the size of your business.
4. Use free resources to your advantage. The IRS website has information free to use. They have forms, tax guides, and answers to questions you may have. Click here to browse the IRS Small Business website
Also check out this video from the IRS website:
These are just a few of the tax tips I want to share. I will continue my theme over the next few days to include more tips and answer any questions you have. I’ll go into more detail on what expenses are allowed by the IRS. Feel free to comment any questions or if you have tax advice you’d like to share below!