Whether you are a full-time freelancer or dabble in self-employment through a side hustle, tax season is a very important time of the year. Even though they don’t send you a reminder, all income, including cash income from a side hustle or online payments as a freelancer, is taxed. Here are some tips to get ahead on your taxes so they aren’t such a burden.
Use a Quality Accounting System
Unless you’re a weirdo like me, you probably don’t think happy thoughts when it comes to accounting for your small business. However, accounting doesn’t have to be on par with a visit to the dentist. You can use good systems to make it a lot easier on yourself.
The biggest and most popular accounting software is Quickbooks. With both an online and desktop version, it offers the most in-depth features and can handle virtually any small to midsize business finances. However, it is a bit more complex to use and understand.
Update Your Books Monthly
Every month you have transactions. Whether related to invoicing and getting paid or expenses, every time dollars and cents move in, out, or around your business, you need to track it in your accounting system. There are a few processes you should run through monthly.
- Revenue entry – Enter every payment you receive regardless of the size.
- Expense entry – Enter every business related expense so you can write it off and lower your taxes due.
- Reconciliation – Match your activity you entered to your bank account so you can find and fix any errors.
Spending a few minutes up front can save hours when it’s time to get your taxes put together. I suggest entering everything weekly if you have a high volume business, or monthly at the end of the month for lower volume businesses. I reconcile my accounts each month when my bank statements come in the mail.
File Your Receipts
Just because you entered your expenses in the books doesn’t mean the IRS will trust everything you entered in the event of an audit. Keep everything in either hard copy or scanned into your computer where you can easily access it.
Bills, invoices, receipts, everything. Keep it all. In this case, being a hoarder or a packrat is a good thing! Why? If the IRS ever decides you are suspicious or may not have been paying your fair share of taxes due, you will get audited. Having those records will make sure the audit goes smoothly and you don’t get stuck paying taxes you don’t really owe.
Depending on your receipt volume, you may want to make a monthly or annual folder for those receipts. Throwing them all in a shoebox works, but isn’t an ideal or efficient filing method. Particularly if you ever need to get back to those receipts for your accountant or an audit.
Make a Taxes To-Do List
There are lots of pieces to doing your taxes. Even if you have an accountant do them for you, it is still your job to get the accountant everything needed for filing.
That means gathering a stack of 1099s, W2s, 1098s, and other forms needed to complete your filing. Look back on the forms you gathered and sent in last year, and make a list of them so you don’t forget anything this time around.
Forgetting about a 1099 isn’t a big deal if you do a great job keeping your books updated, but if you forgot about a client and get the 1099 in the mail, you may have to submit an updated tax filing, which is an avoidable hassle.
I had to submit an updated filing last year after a forgotten form, so learn from my mistake by planning ahead!
Taxes Don’t Have to Be a Time Burden
While the financial side of it depends on how your business performed, taxes don’t have to be a huge time burden. In fact, they can be easy. You just have to spend a little time each month preparing.
If you wait until April 1st, doing your taxes is a huge stress. Rushing through can lead to errors and problems. Spending a few minutes each month ahead of time can help you avoid that and glide through tax season with the grace of an Olympic figure skater.
2016 still has a few months left, so take the time now to avoid stress and headaches later. Your future self will thank you!