It’s officially tax season. While the average person might find filing taxes a bit stressful, those of us running businesses can easily become overwhelmed with the task that often requires a lot of organization and paperwork. If you are a super organized business owner (lucky you- this isn’t necessarily me) you may have been keeping excellent records all year that will make tax season a breeze. But if you are not, and you are like me and you end up doing a bulk of your tax paperwork prep right before you get to filing, then I have some practical tips for helping you stay cool, calm and collected during the process. These tips aren’t related to tax code knowledge itself. For that, you will want to consult a professional or the IRS or tax bureau in your locality. Instead, I am going to focus on practical organization tips that have helped me overcome the overwhelm that tax season can bring and help you make the process easier for yourself in the future as well. From my personal experience, most of the stress of the tax process isn’t necessarily related to the work itself, it’s related to what we believe is a complicated process that carries dire consequences if executed on incorrectly. This is not accurate, so let me share some personal insight and tips with you.
My 5 Best Tax Tips for entrepreneurs and Small Business Owners
Get Started ASAP: In the U.S. we have a window of several months in which to file our taxes for the previous year and it can be so temping to put off working on your taxes until the deadline approaches. However, unless you have a significant reason for deferring the task (or know you need an extension) aim to get the work done sooner, rather than later. This isn’t just a practical tip, but its a psychological hack to help you feel more confident. Delaying the inevitable only increases stress, and stress leads to pressure that could cause you to delay too long or make mistakes once the time comes to execute. By started earlier in the season, it will give you more time and confidence to relax and take your time to get the job done right.
Document the process: No, I don’t mean take photos of you doing tax prep to share for Instagram, although I guess you could do that. I mean as you go through the process of working on your taxes keep notes on what you are doing, why, the questions that arise, the documents you refer to and the solutions you find. This can help you in a few ways. First, you will have a written record and system for your tax prep next year which will make it much easier for you in the future. Second, in the off chance you end up being audited, at least you have a record of your process to understand what you did and why- so you can verify your work or find the errors and correct them.
Familiarize yourself with last years tax return: If you have filed taxes for your business in the past, I recommend reviewing your tax documents from the previous year (or even years) to help familiarize yourself with the process. I happen to use turbo tax software myself to file, and it actually keeps my previous years records in line as I am entering the data for my current year. This helps me when I get to a line I might not remember, to understand what I did before so I can remain consistent.
Use separate accounts for your business: This tip may not help you when you are filing your taxes this year, but if you aren’t yet using separate accounts for your business, you will want to start doing this asap. I know it seems like such a little thing, especially if you are a solopreneur like me, but having separate checking, savings and credit accounts for business use will actually make it much easier for you to prepare your taxes because you don’t need to search through personal accounts for business expenses. When everything for your business is kept on it’s own, even if you weren’t particularly organized throughout the year, you have everything in one place that is easier to organize when the time comes.
Don’t stress, seriously: I remember my first time filing taxes for my business. Stressing and pouring over numbers on spreadsheets to ensure I didn’t make even a single tiny mistake, for fear that I would go to jail for tax evasion if my filing wasn’t perfect. Then, after it was all done and I saw how how simple the process was, I began to relax. Over time, and through talking to different business owners and tax professionals, I’ve learned that the process of tax preparation doesn’t require a degree for a reason. Taxes might seem intimidating, but truthfully, the process isn’t difficult to understand (this could be different in other countries/situations). The government just wants you to pay them, so doing your taxes might seem scary, but it’s actually pretty easy. If you wanted people to give you money, wouldn’t you make the process as easy as you could? As long as you follow directions and don’t lie, nothing bad can happen to you. Honest mistakes happen, and I’ve definitely made them, but if you find a major error you can submit an adjusted tax return to correct it. And if you do something major that doesn’t make sense to the government, that’s what audits are for, to check your work. I can say this having been audited as well, that as long as you know what you did and had what you believed to be a solid reason why you did it, you’ll be fine. In fact, the one time I was audited, they ended up giving me back more money which I totally didn’t understand, but thanks for being honest on your end too, government!
So those are my 5 best tax tips for entrepreneurs and small business owners. I do hope these tips help you to remain calm and relaxed during the somewhat uncomfortable process of tax preparation. Remember, although paying taxes isn’t the most exciting thing, if you are doing so on behalf of your own business or entrepreneurial endeavors, it means that you are living your dream and producing something of value to society. So, all negative connotations of paying taxes aside, I consider it a privilege and responsibility I have that is par for the course of living the life I choose to live.
In case this wasn’t clear from the start of the article, I just want to say that although I am an entrepreneur/small business owner, I am not a tax professional, and I am not affiliated with any tax bureau’s or services, so this is purely anecdotal information meant to ease your mind. If you have questions about tax preparation or tax laws, definitely seek the advice of a professional or the government. I hope you found this article enlightening and I would love to hear your feedback in the comments.
xoxo,