On a scale of 1 to 10, how much anxiety does tax season give you? Friends, I’m going to be honest, it’s not my favorite time of year. I’ve even cried a few times. I’m sure you have also.
I can’t say that there is a way to get rid of all tax-related stress completely. However, there are a ton of things you can do to make your next tax season less hectic than your last.
No. 1: Get organized.
Most of the stress we feel about filing taxes is connected to one of two things: getting the paperwork together or what we might owe. Being proactive all year long can make number one a breeze and maybe even reduce the amount of number two.
- Don’t leave it until the last minute. Start putting systems in place now (if you haven’t already) for how to be better organized for 2019’s accounting.
- Decide on a filing system. Whatever works for you is fine. A Pandora’s box of random paperwork isn’t recommended. Receipts shouldn’t be used for the actual tracking of your accounting. Receipts are only necessary to show your paper trail in case you are audited.
I like to keep things simple: Have a folder for every month of the year, January through December, and tuck receipts away as they pop up. Create a folder in your email to capture all of the digital invoices that make their way to your inbox.
- Use a separate bank account for your business. It’s likely you already have a business bank account. Now make sure you don’t confuse things by using your personal account for business and vice versa. Bear in mind: Mixing transactions in accounts isn’t illegal as long as you properly record these equity transactions. But, it makes things a lot more complicated to separate the two over time.
No. 2: Use software.
In an ideal scenario, you’ll be using QuickBooks to track your income and expenses. The power of this software’s reporting capability gives you the ability to hand off your accounting to your tax accountant without needing to deal with that shoebox of receipts. Furthermore, it allows you to get timely earnings information year-round.
If your business is on the newish side and so manages a small volume of transactions, I’m not opposed to using a trusty Excel sheet to track income (sales) and expenses.
Either way, software is only as good as your efforts to use it! Mark your calendar to sit down with your accounting system (QuickBooks or some other) the first week of every month to record your income and expense activity, and to review the previous month.
No. 3: Collect your W9s all year long.
The United States tax agency—the Internal Revenue Service—requires that you send 1099s to any vendor or contractor that you pay more than $600 by check or cash. (If you pay with a credit card, the credit card company will send your vendors a summary 1099 report.) This not only includes contractors you hire to service events, but also any organization or service that helps support your business (e.g., your web designer).
1099s are due Jan. 30 each year and require that you have tax ID, address, and other payee information for each contractor. By requesting a W9 at the time you hire a contractor, you’ll have everything you need to generate 1099s lickety-split. No need to gather everything at the last minute.
No. 4: Make quarterly installment payments.
A big mistake that some business owners make is leaving their tax payment until April 15. Almost every veteran business owner can share the horror story of “that year” that they first made considerable earnings and ended up having to pay a huge tax bill. (Imagine having to come up with $30,000 to pay Uncle Sam!)
You can avoid this by making quarterly installments towards your next tax bill. You’ll definitely want a tax expert to guide you through this. But a general rule of thumb is typically 25 percent to 30 percent of your expected net income. You can generate your Profit & Loss Report (aka: “the P&L” in QuickBooks) for each quarter and calculate that estimated amount. Use 1040-ES pay stubs to send it in.
No. 5: Touch base with your tax accountant now.
If your business hasn’t changed much, this can be as simple as a 10-minute phone call (or email) just to check in to see if there have any changes to the tax laws that you need to know about for 2019-2020.
If your business has gone through some big changes, or you're starting to see increased profits, then you definitely want to have a tax planning meeting now. Once January rolls around next year, your accountant will be knee-deep in tax prep and can’t have these important tax planning meetings with you.
You need to be proactive with this. Now is the time to talk taxes.
Conclusion: Just do it!
Procrastination is not your friend. Be proactive with your finances and not only will you have better information to make business decisions, but also, you’ll have less stress in your life relating to money and taxes.
Michelle Loretta is a business consultant and financial strategist for wedding and event professionals. As founder of Sage Wedding Pros, she blends her past as an accountant for Deloitte, a sales and marketing manager for DDLA, a merchandiser for Coach, and a stationery entrepreneur to strengthen wedding businesses worldwide. Sage Wedding Pros is the creator of Accounting 101 for Wedding Professionals. Loretta has been asked to speak at a number of industry conferences, including NACE Experience and The Special Event.