Knowing how much to set aside for your business taxes can be tricky. If you haven’t been very organized this year, it’s not a bad time to get back on track before the holidays hit and things get very busy. Here are some tax tips to keep in mind for your small business taxes.
1. DIY tax prep might not be so easy.
When it comes to knowing how much of your income to set aside throughout the year for the tax on your business (tax obligation may be quarterly in your state), the accountant and Founder of AccountLancer, Eric J. Nisall explains, “While essentially it’s just a percentage of your business income, it isn’t as straight-forward as it seems.” He adds that the IRS Schedule SE shows the actual computation, but it’s only for the Self-Employment portion of the equation.
You still have to include the federal withholding portion. Nisall also points out that missteps can arise when people attempt to include non-deductible items. There are also many websites providing spreadsheets or online calculators which appear to make the process easier, but if your figures aren’t right to begin with, it can be tough to straighten out come tax time.
2. Stay organized no matter who does your taxes.
Whether you attempt to do your taxes alone or hire someone to straighten out your affairs, avoid looking through a mountain of receipts at tax time. Instead work on what’s manageable. Think about chipping away at organizing needed information like bills, receipts, invoices, mileage, etc. as you go along throughout the year. You don’t want to scramble at tax time to get ready. Your ulcer will already be acting up then, so don’t add to it by being unorganized.
3. Choose your invoicing system wisely
Also, the location from where you choose to send your invoices can make all the difference. “Using online invoicing with a payment gateway built-in allows you to get paid faster and it tracks past due invoices for you,” says Virtual Tax Pro and Bookkeeper for Entrepreneurs, Melissa Whaley. She adds that you can set up automatic late reminders for those clients who aren’t the best at paying on time.
4. Stay orderly for yourself and your tax preparer
George Papadopoulos, CFP® and CPA of TheFeeOnlyPlanner.com highly recommends that freelancers and small business people record expenses on a spreadsheet. He adds that the accountant is there to prepare the tax return but shouldn’t have to organize a bunch of papers. He explains, “The last thing a tax accountant wants to see is a box full of invoices and receipts and have to reconstruct the annual activity.” It’s not the best use of their time.
The Bottom Line
Though we are already into the 4th quarter (Q4), it couldn’t hurt to start organizing needed information and keep your records in better order now. Even if you’ve procrastinated throughout the year, and didn’t stay organized when preparing your tax documents and information, it’s still not too late to backtrack and get started today. You’ll have so much more peace-of-mind when tax time comes around this year, and the next year, and the next year, and even the next year.