It’s that time of year again – April 1st is right around the corner which means that tax day will be here before we know it. If you’re anything like me, that sentence alone may prompt you to pour a glass of wine (or 3) and bury yourself in a Netflix marathon.
I find that it’s hard not to feel helpless when it comes to taxes. They are a yearly inevitability, yet they are often confusing and complicated. Not to mention how painful it is to send in that hard-earned money.
This year, I challenged myself to be proactive when it came to my taxes and approach them with a sense of capability rather than helplessness. While my new outlook didn’t make it a fun experience, it DID help me relieve some stress throughout the process.
If you’re dreading filing your taxes, take these 5 tips to heart to help you remain calm throughout this stressful season.
Save As You Go
For many, the first year of filing taxes as a business owner is tough because you will likely owe much more than you have in the past. Since you aren’t receiving a paycheck that has income tax already deducted, you’re taxed on your income when you file in April. Don’t let it sneak up on you. The best piece of advice that I received when I started out on my own was to set aside a percentage of all of my revenue for future taxes. Believe me, that’s hard when you’re starting out and have bills to pay. But the alternative is to get stuck in a never ending cycle where you’re having to hustle to make enough money in one year to pay taxes for the last. You can never get ahead or reinvest your profits.
So, I recommend setting up a business savings account that is dedicated SOLELY to future taxes. I set aside 30% of each check I receive, no matter how small. This helps reduce the stress of filing the next year since I already have that money covered.
As the old saying goes, nothing in this world is certain except death and taxes. So, as tempting as it might be to ignore them altogether, procrastinating will only add to your stress. This is especially true for business owners who are filing their business taxes for the first time and aren’t sure what to expect. Whenever I think about taxes, I picture a weight hanging over my head and as each day passes it gets closer and closer to smushing me. Why not file as soon as you can so that you have plenty of time to get your finances in line? Plus, the sooner you file, the sooner you can breathe in that sigh of relief.
One of the main reasons people put off filing their taxes is because they didn’t…
I talked about the merits of setting aside time to review your expenses on a regular basis throughout the year in this article about monthly budgeting and when tax time comes around you’ll be glad that you did! I learned my lesson the first year I had business expenses and have been categorizing according to tax deductions ever since. That means that I literally just have to go down the line in my Wave account and enter in my expenses. I promise, it took me less than 10 minutes.
So, if you’re the person who has receipts scattered everywhere and 3 different accounts to check, take it from me and get organized!
Know Your Options
Let’s be honest. Taxes are complicated. Back in 2012, National Taxpayer Advocate Nina E. Olson found that taxpayers spend six billion hours EACH YEAR trying to comply with tax filing requirements. Six Billion Hours. Billion with a B. (Also, bless you Nina. I can’t imagine having a job as a “National Taxpayer Advocate”)
While you don’t need to have a complete understanding of the entire tax code, it is important to know your options and how each may affect your filing and business. Will you be reporting your business income and expenses on your personal report, as an LLC? Or will you file as an S-Corp? When do you need to start reporting income quarterly? Do you qualify for a payment plan or deferred payment option?
If all of this is making your head swim, there is a solution…
Hire a Pro
Sometimes, nothing will ease your mind more than waving the white flag and bringing in a professional. Sure, you could go into your neighborhood H&R Block, but that’s still a bit intimidating. Luckily, there is a whole breed of accountants out there that are solely focused on helping creative entrepreneurs take the stress out of filing their taxes. My friend, Amy Northard (also guest expert on the finance module of my Side Hustle Starter Kit), is one of them.
Even if you don’t feel like you need to have an accountant file your taxes for you, it’s still a great idea to seek one out for a bit of consulting to make sure you’re on the right track. After all, your finances fuel your business so make sure you’re making the most of them!
Taxes are not fun. But they don’t have to ruin your spring either. Take these steps and take back control of tax season!
Did I miss something? Let me know how you manage your tax prep in the comments.