Two words that many small business owners, freelancers, and solopreneurs dread are TAX TIME. The term conjures images of spreadsheets, folders brimming with crinkled receipts, and complicated forms. Even if you’re a “numbers person,” this time of year can still feel daunting. Many of us are already busy with the day-to-day demands of our businesses, so tossing tax obligations into the mix can feel downright overwhelming.
What to do?
Fortunately, it is getting easier to file your annual taxes. Technology is a big help (hello, e-filing!), and many resources are available to walk you through the process. You can also simplify your tax season by following these six steps:
1. Start NOW
In an ideal world, you have been taking small steps throughout the year to prep for tax season. Many of us, however, do not live in that ideal world and are currently panicking as the filing deadline looms ever closer. As a common proverb says: The best time to plant a tree was 20 years ago. The second-best time is now.
Let’s “plant that tree” and dive in! Don’t put this off until next week or next month. If you don’t schedule time on your calendar ASAP, you’ll likely find yourself delaying until the last possible minute. And that’s never a good thing (especially if you run into issues).
2. Develop a tracking system
As a small business owner or freelancer, it’s crucial to keep track of “money in, money out.” What business-related expenses have you incurred throughout the year? Are you tracking them somewhere? Are you also tracking your gross income (total amount you’ve earned) and net income (amount you’ve earned after income tax and other deductions)?
If your business is smaller or fairly straightforward, you can likely get away with using a basic spreadsheet, such as Excel or Google Sheets. When tracking expenses in your spreadsheet, it’s helpful to assign each item a tax category. You (or your accountant) will need to know how to label each expense for filing purposes, so if you always label your expenses, that can save gobs of time during tax season. Categories include office supplies, advertising expenses, utilities, and postage/shipping.
If your business is fairly complicated or large, you may want to forego the spreadsheets and invest in some bookkeeping software. Many software programs are reasonably priced and easy to use, which can save you quite a bit of time in the long run. Some examples of popular accounting programs include QuickBooks, FreshBooks, and Wave (free).3. have a filing system
Similar to having a tracking system, it’s important to develop a filing system for your receipts and invoices. You’ll want to keep a physical file for paper receipts/invoices AND at least one electronic file for electronic receipts/invoices. With electronic filing, it’s easy to get more detailed and file receipts under the year + category (as mentioned above). Your electronic filing system could be on your computer (a system of file folders) or through your email (create a special folder for the year’s business-related expenses).
4. use your systems!
Your carefully developed tracking and filing systems will be utterly useless if you don’t use them. Develop a routine for organizing and recording your expenses and income. I recommend designating one day each week for updating your accounting spreadsheet (or accounting program) and filing your receipts and invoices. Every Tuesday at 10 a.m., for example, could be your day and time for adding expenses to the spreadsheet, recording income from the week prior, and filing your receipts. You might also file your receipts as you go (which is a smart approach if you use email folders). For example, if you receive an electronic receipt for printer paper you ordered from Office Max, immediately move that email into your designated folder.
If possible, consider hiring a bookkeeper or virtual assistant to take care of your accounting work. If you absolutely loathe tracking your expenses or filing receipts (and you know you won’t do it yourself!), it is probably worth it to pay someone to do it for you. Hiring a virtual accounting assistant is not as complicated as you might think. Companies such as Delegated or Time Etc specialize in providing virtual bookkeeping services and have their systems down to a science.
6. file online
One of the easiest ways to simplify your tax season is to file online. Online programs have become easy to use and intuitive, and many of them are affordable (or even free!). Some of the big players are TurboTax, TaxSlayer, and H&R Block. The IRS also offers a “Free File” program which is tax prep software, available for free to those with $73,000 or less of adjusted grow income.
The words “Tax Time” might still make you shudder, but hopefully these six steps can make the season a little more manageable. If you haven’t taken steps to plan ahead this year, start planning for next year. Your future self will thank you!