How do I prepare for taxes?

Get organized for tax season you beautiful business owner!

Every year, comes tax season. It's always good to get organized at the end of the year for the next tax day, especially as things are fresh in your mind. Whether you're just starting a business today or you're more seasoned... it can always feel like a frantic dash to file your return. 

Here's how to stay organized now and going forward with your finances, purchases, receipts, documents and deadlines to follow. 

Know your deadlines:

Your fiscal taxes are due April 15, 2021.

This the day you file your tax return for the entire year.

However, depending on your business type, you may need to submit quarterly taxes to the IRS as well.

  • That breaks down to: January 1-March 31 due April 15, April 1-May 31 due June 15, June 1-August 31 due September 15, and September 1-December 31 due January 15. 

The IRS deems that businesses and self-employed individuals must pay estimated taxes including sole proprietors, partners, S corp shareholders if they are making an income. 

If you have paid any independent contractors or employees more than $600, you're required to provide them with a 1099 or W2 before February 1st. 

Organize your receipts: 

Keep track of your receipts for any purchases or ongoing bills that are for your business. In today's age, try to go paperless so you can organize your receipts online, making it easier to not lose anything.

  • You do you, but consider using a tool like Evernote, which is free to upload and scan receipts and documents. Or you try Expensify, starting at $5/month, where you can add receipts, credit card purchases and keep track of expenses. 

Get your tax documents from the bank and points of sales:

Any financial system that you deal with - banks, fund managers, payment processors like Stripe, PayPal, Venmo, Square - they will all provide you with various documents for yearly taxes. These are typically released at the end of January. 

Did you pay anyone via a 1099 form?

Did you work with anyone this year that you paid more than $600?

If so, you'll need to send them a 1099 form by February 1st, and submit a copy to the IRS by the end of March.

  • A 1099 worker provides specific services as defined by a written contract, often known as freelancers, consultants, or self-employed business owners. Typically these are project based hired with a finite time of services required.

Figure out your deductions: 

The most fun part about taxes is deductions!

You'll include deductions on Schedule C, Form 1040 of your return. And oh are there so many things you can deduct. If you have starting a business at home, you can qualify for a home office deduction based on how regular you work from home and if you have a dedicated area to work out of. Here is a list of possible deductions:

  • To figure out your home office deduction, take the standard $5 per square foot of your home that is used for business, up to 300 square feet.
  • Keep track of any educational courses or workshops you have attended.
  • The percentage of your phone and internet costs used for work
  • Any software costs for Zoom, Google Voice, Bounce House, or hardware like a printer.
  • Transportation, taxis to meetings, vehicle use.
  • Costs of shipping if you work with physical goods, equipment you use or need (for instance a camera as a photographer, weights for personal trainers, or a computer for a designer).
  • Meetings or meals for business.
  • Any professional services you hire for your business - an accountant for instance! 

Do you pay sales taxes?

Sales tax laws are complicated, but basically any product-based seller will have a sales tax due. There are 45 states (and DC) that require sales taxes if you have a "nexus" basically an established place of business - an office, employee, warehouse, affiliate, drop shipping, or trade show. If you have or do any of these things, you'll need a sales tax permit.

Keep your books up to date

Bookkeeping is a necessary component of your small business and ensuring that you're budgeting correctly every week or month. If you want to hire a bookkeeper, go for it!

 

Taxes may not be fun, but they are a legitimate part of running a business. Welcome :)