Tax season is quickly approaching, and as an entrepreneur, this time of year can be very stressful if you don’t plan correctly. Even if you aren’t totally prepared this year, take this as a sign to get your ducks in a row and be better for next year. Here’s my complete guide to taxes 101 for entrepreneurs.
First, you’re going to want to decide how you’ll keep track of everything. I think a digital tool is the easiest way to go, since most of the calculations and imports are done automatically for you. My two personal favorite tools are Freshbooks & Quickbooks. You can certainly use Excel or good old pen and paper if you wish as well.
Next, you’re going to want to open a separate bank account (if you don’t have one already) for just business expenses and income. Trust me, it makes things so much easier if it’s all in one place. Even if you just open a separate business credit card, something is better than nothing!
Track It All
You’ll need to begin meticously tracking your income and expenses. Make note of any income you receive, no matter how little. It starts to add up over time. Income is pretty straight forward, just take note of how much it was and where it came from.
Tracking expenses opens up a whole other can of worms: deductions. This is really where those programs make things a lot easier, because you can categorize every purchase & at the end of the year your deductions are already calculated for you. Here are some of the most popular deductions:
- Advertising & promotion
- Auto expenses
- Bank fees
- Business licenses and permits
- Charitable Contributions
- Cost of goods sold
- Dues and subscriptions
- Equipment Purchase or Rental
- Merchant processing fees/listing fees
- Professional fees (accountant, lawyer)
- Office expenses
- Shipping + Packaging
As you can see, there are SO MANY deductions. This is why you should invest in your business, especially once you start to grow.
Pay Taxes Quarterly
If you expect to owe over $1000 in taxes at the end of the year, you should pay quarterly taxes. These are estimated taxes so you may still owe some at the end of the year. You can chat with an accountant if you’re stressed about this, but Freshbooks and Quickbooks calculate this for you depending on your income and expenses.
Thanks for reading!