Tax Tips For Entrepreneurs: 4 Simple Steps That Will Make Tax Time Easier
After weeks of anxiety, stress, and frantic calls to your accountant, tax filing season is finally over! Heave that huge sigh of relief – tax time is one of the most stressful periods for small business owners.
However, before you decide you can forget about your taxes till next year, here’s a thought. What if a few simple actions you take now (and through the rest of the year) could save you a ton of time, energy, and worry when the 2023 tax season rolls around?
If you want a smooth sailing tax time in 2023, now is the time to get started!
In this article, I’m sharing four simple steps entrepreneurs can take now that will make tax time a whole lot easier.
1. Get Your Business Finances Organized with Bookkeeping
It can feel tempting to skip this step but trying to get your finances organized without setting up your bookkeeping is like trying to build a house without pillars – eventually, it’ll all come crashing down. Save yourself the headache by spending some time now to get your bookkeeping in order.
Use a bookkeeping spreadsheet or accounting software
If your business is in the early stages, the easiest (and low-cost!) option is to use a spreadsheet to track your income, expenses, profit, and other numbers every month. You could use Microsoft Excel or Google Sheets, and there are handy templates (including the Exceptional Business Spreadsheet) that can get you started. It can be helpful to set aside 30 minutes every week to update your spreadsheet so you don’t miss anything and it doesn’t become an overwhelming task at the end of the year.
For business owners with more complex needs, accounting software is the way to go. Quickbooks (affiliate link*) is a popular choice among entrepreneurs who are looking for a streamlined solution to their accounting needs as it integrates directly with business bank accounts. This means you spend less time manually updating your books and more time making money! Wave is another option for free accounting software that will help you keep your business finances organized for tax time.
*Affiliate link disclosure – if you use this link to make a purchase, we earn a small commission at no additional cost to you.
Separate your business and personal accounts
Feel like setting up a separate bank account for your business is a chore? Not doing it will make your upcoming tax season about 782 times more complicated! Part of good business financial hygiene is keeping your business and personal bank accounts separate.
The biggest reason for this is to avoid getting into trouble with the IRS (nobody wants that!). When reviewing your tax return, the IRS assesses your recorded business expenses. If they cannot distinguish your business expenses from your personal expenses because all of these transactions are flowing from the same bank account, they may reject ALL of your business expenses. The result? A much higher tax bill than you would have expected.
Save yourself the trouble and open a business bank account immediately if you don’t already have one.
Keep track of your receipts
There’s nothing quite as frustrating as trying to file your taxes and not being able to find the accompanying receipt for a purchase. Instead of scrambling around searching for scraps of paper, it is much simpler to ensure that your receipts are organized and sorted by year and month as you go along.
The key to this is a simple and intuitive system that works for you. Opt for a straightforward system that you find easy to use rather than a complex system that you dread navigating – this will help encourage you to keep track of your receipts consistently through the year.
2. Implement 50-30-20 Money Framework
Once your bookkeeping is set up, you are well on your way to having an easeful tax season in 2023. The next thing to do is to implement the 50-30-20 Money Framework.
So many entrepreneurs overlook putting aside money for paying taxes. Instead, they manage their business finances out of their bank account. When it is time to pay taxes, they find that they don’t have the necessary cash.
Avoid this situation by implementing the 50-30-20 Money Framework. This framework guides you in how to allocate your profit so that you’re ready when tax time comes around. By consistently setting aside 30% of your profit every month, you will ensure that you have sufficient funds to pay your taxes each quarter.
3. Make Quarterly Estimated Tax Payments
Make tax time a whole lot less stressful (and expensive!) by paying as you go. Make quarterly estimated tax payments to avoid owing the IRS and skip the penalties.
If you expect your total tax bill for the year to be more than $1000, you are required to make tax payments every quarter based on your estimate of how much you earned during that quarter. You can use Form 1040-ES to pay your quarterly estimated tax. You can make adjustments throughout the year to ensure that you pay the correct amount of tax you owe.
Failure to make the correct quarterly estimated tax payments (i.e. you have paid less tax than you owe) can result in stiff penalties, so don’t skip this step!
The IRS deadlines for estimated tax payments are:
- Q1: January 1 to March 31 – April 15
- Q2: April 1 to May 31 – June 15
- Q3: June 1 to August 31 – September 15
- Q4: September 1 to December 31 – January 15 of the following year
Learn more about how to make estimated tax payments here.
4. Touch Base with Your Tax Professional
As a small business owner, you may feel like you can handle your taxes on your own. When you first start your business, this may be the case and you can easily manage your taxes independently. However, as your business grows and gains traction, it is wise to consult with a tax professional.
A tax professional can not only help you with your tax returns but also provide invaluable advice about tax planning. Many tax-saving strategies available to small business owners must be implemented during the financial year. Working with a tax professional can help you identify which tax breaks you can take advantage of to lower your tax bill. Done with foresight, tax planning can save you hundreds, if not thousands, on your tax bill.
What’s more, with the support of a tax professional, you won’t have to worry about getting audited by the IRS or that you’re accidentally missing out on important tax savings!
Create a Stress-Free Tax Time
Tax time doesn’t have to be stressful or frustrating – if you take the necessary steps to get your financial house in order ahead of time. By implementing these four simple steps in your business, you can enjoy an easeful tax filing season in 2023.
That said, getting support makes the journey easier!
If you want to work 1:1 with a trusted tax professional who can help you with paying your taxes while saving money, get on the Exceptional Tax Services Waitlist for Tax Preparation and Planning. We’ll take care of the tax preparation of your return, guide you through quarterly estimated tax payments, and offer strategic advice and support all year round. Find out more and sign up for the waitlist now!
Not looking for 1:1 support but eager to get started on your journey to a solid financial foundation for your business? Join the Exceptional Business Membership today and lay the groundwork for your business to thrive.
