Writte by Luke Frye
Tax time is coming again — you can feel it, can’t you? Like a vibration on a train track.
It’s unstoppable, yes, but that doesn’t mean you have to be flattened. Learning about how to handle your taxes is the best way to avoid a nightmare scenario. The good news is that there are some basic principles, and it doesn’t take a wizard to learn them.
Here are four ways to have a smooth tax season, no locomotives involved.
Get organized
Establish a reliable bookkeeping system so you can do your taxes easily and so you can monitor the financial health of your business and make better business decisions. The system doesn’t have to be anything fancy; it just has to make sense and be updated. Consider software tools like Freshbooks and Xero.
Record-keeping is also essential. Save all your receipts for business expenses, as well as bank and credit card statements. Services like Filethis or Hubdoc can help, or save your docs in Google Drive, or Dropbox or you can use the Paco’s Papers Method.
Learn what you can deduct
You can lower your tax bill by deducting business expenses, which the IRS says must be both ordinary and necessary. That means they are typical for your type of business and that they help you do business better. (Note that necessary does not mean “indispensable.”)
Learning the rules on this will help you feel confident in the info you’re giving your accountant and submitting to the tax authorities. Saving your receipts for these expenses will help you in case of an audit.
Pay quarterly estimated taxes
Failing to pay quarterly estimated taxes is a big mistake. There are two ways to handle this: Either pay the same amounts that you did the previous year or pay the actual amount of taxes you think you owe each quarter. If you made more money this year than the year before, make sure to save aside enough to pay the taxes will owe in April.
Federal and state quarterly estimated income tax payments are due in April, June, September, and January each year. Here are key dates:
Q4 (for the previous year) - Jan 15
Q1 - April 15
Q2 - June 15
Q3 - Sept 15
You’ll face penalties if you don’t file on time or ask for an extension by the due date.
Hire professional help
Hire a tax accountant and/or a bookkeeper as soon as you start feeling confused or overwhelmed by the financial ins and outs of your business.
These professionals can answer your question and explain what you need to do. It’s key to find someone you feel comfortable with. Many individuals only hire a CPA to prepare and file their taxes, but you can work with a CPA all year to optimize all eligible tax deductions or credits.
If you follow these four essential pieces of advice, your tax season will go swimmingly. Then you can get back to the creative work you’d rather be doing. Feel free to reach out to Timber Tax if you have any questions.
Luke Frye is a Washington CPA and co-founder of Timber Tax, tax advisors for entrepreneurs. You can book a call to talk with Timber here.