Tax season can be pretty daunting for small business owners and freelancers. If you pay quarterly taxes, you may realize that you need to be more on top of your tax documents and track your business finances efficiently.
Now that the federal deadline for filing and paying 2019 taxes has been extended, you may be feeling a little relief but the clock is still ticking. Falling behind on your taxes years after year is all-too-easy when you’re running a business. It can also be stressful if you’re constantly pushing the federal deadline.
The key is to stay on top of your taxes by doing smaller tasks that will help you prepare year-round. Here are 5 tips to help you stay on top of your taxes.
1. Track Your Income Each Month
One of the most crucial parts of keeping up with your taxes is tracking all your income.
If you have your own business as well as full-time or part-time job, be sure to separate your income from your own personal business. You want to separate your personal paystubs from your checks from your job. It’s also always a good idea to have a separate bank account for your business if you own your own.
For me, it’s so easy to fall behind with tracking income but it’s one of the most important ways to stay on top of your taxes. Set a date on your calendar where you can track income each month so this task doesn’t build up over time.
2. Keep All Paystubs
This is essential for those who have multiple jobs, or several clients. As a freelancer, you don’t have a paycheck. Instead, you probably have multiple forms of income coming in all times throughout different mediums. Make sure you have a spreadsheet or a written document of every piece of income that comes your way with the date of payment, amount, medium, client name, contact, and the work that you completed for them.
You may even be able to connect your invoicing software with your bookkeeping system to stay organized.
3. Keep Receipts and Review Bank Statements
Tracking your expenses is just as important as tracking your income. Be sure to hold onto receipts so you can deduct certain expenses from your income. You can also set a date aside each month to review bank statements in order to track and record your income.
It’ll be easier to manage your expenditures on food, gas, entertainment, business, etc. It’s even more important to ensure that you are keeping all receipts for business purchases or purchases that you are writing off on your taxes.
4. Hire a CPA
If you want to make sure that your tax tracking is top notch, your best bet is to hire a CPA. A CPA, or a Certified Public Accountant, can help you to account for every tax record that you need, and they will do so using professional services and tools. They can also offer guidance and advice throughout the year. My CPA is not local and lives out of state but we still communicate all the time via email.
5. Keep Old Tax Returns
Keep all your old tax returns to refer back to. The IRS is allowed to audit your taxes from the past three years so it’s crucial to keep all records from that time to avoid a major fine if you get audited. Not only that, but tax returns can also be used as a form of identity.
Tax season can be daunting and a headache for anyone, but it’s always less painful if you are prepared and organized. Keeping these detailed records will save you time, stress, and if you ever get audited. Most important, you’ll be able to stay on top of your taxes and get everything filed in less time.