3 Ways You Can Prepare for Tax Time
Here we are on DAY FOUR of my 10 days of tips on business owner finances. Today, we’ll be discussing everyone’s favorite topic- tax time!!
Tax season is a monster for accountants, but also their clients. There is apprehension, dread, stress, and pressure all mixed with a dabble of “dang, I should have done this months ago like I said I would!!”
In an effort to serve you and make 4/15/2021 a day you are actually excited for, I’ve put together three tips for ways you can better prepare yourself for tax time as an entrepreneur.
Update your bookkeeping software & categorize your expenses
If there’s one system I know everyone needs, it’s a bookkeeping software. This helps you categorize and track your expenditures in your business, run reports to assess your business’ financial health, and keep track of historical data. You already know we love data around here!
Having bookkeeping software such as Quickbooks allows you to automate a bunch of your expense categorization. That means you don’t always have to go in and painstakingly select individual transactions and tell the software what type of expense this was. Doing this on a consistent basis or hiring a bookkeeper (even better!) will allow you to keep up with expenses. After all, do you really want to spend March coming through last July’s bank statements? I think not!
Gather any receipts that might have passed outside business accounts
You guys already know how important it is to keep personal and business finances separate. However, life happens and sometimes you have a business expense that is paid from a personal account. Be sure to keep track of these in some way or at least gather those receipts to give your accountant. The sooner you do this, the better because you will likely forget if you wait too long. The other risk is that your tax preparer might assume everything you needed to claim was inputted into your bookkeeping software and not ask you for any other expenditures. Do yourself a favor and notate it ASAP to avoid any potential oversight.
Ensure you have the cash to pay any potential tax bill.
I must sound like a broken record at this point, right?
Seriously, one of the most frequent mistakes I see entrepreneurs make is not putting aside money to pay taxes. Although it is tempting to take an “out of sight, out of mind!” approach to paying taxes, Uncle Sam will come for you no matter what you do!
I recommend asking your tax preparer your approximate tax rate (15%, 25%, etc.) and putting aside that percentage of your gross income every single month. It’s an imperfect science, but can be a practical and useful tool to ensure we’re in the right ballpark. The worst-case scenario, if you don’t need the money, is you have some money to use strategically. If you still need to pay, you’ll be so glad that you at lest had some of the money you owed.
I hope this was helpful for you entrepreneur’s out there. If you want to get your finances all the way together before tax time, I am preparing an exclusive 2 day workshop to help! Please reach out and secure your seat before they all go!