Fun fact - Business taxes in many states, including California, are due a month earlier than the April 15 deadline (March 15, I’m ready for you!). The reasoning behind it is entirely rational - business owners who carry their business’ profits/losses need to know what those $$ are to report on their personal taxes - but it doesn’t make it any less daunting or stressful when you’re in it.
Unless you’re prepared.
Which you know I am. And now you will be too.
Below are some of my tips, tricks and methods for keeping everything organized year-round, and not just tax season. It’s turned this time of year from ‘pit-in-my-stomach’ to “one more thing to check off the list.”
1 - Maintain a separate business bank account: If you do one thing this year, it’s to open and only use your business bank accounts for business purposes. You’ll need a business checking account and a business credit card (get those points!). And no, you don’t need to have an entity (LLC, corporation, etc) to open a business bank account - just a business ID number, which you can obtain through your state’s tax board.
Not only is it ILLEGAL to mix business $$ and personal $$ (it’s called commingling, and it’s the number 1 red flag in audits) it makes tax season insanely stressful for you because you have to go through multiple accounts to pull expenses.
Don’t forget that you can link your PayPayl, Venmo and Zelle all to your business checking account, so you can still see all transactions in one place. And I promise your life will be exponentially easier when every business transaction is done from account.
2 - Start early. Like, today. Just stop procrastinating. Even if your business taxes aren’t due in the next week, or you’re getting an extension, start getting yourself organized today. Chances are, you’re putting it off because it’s not fun, because you’re not organized, or because you know you owe money. But the longer you wait, the more stress it’s causing in your life, and the less likely a tax professional will be able available to help you organize and prepare your returns. Worse than that - you’ll probably pay more and get sloppier work the closer to the filing deadline.
3 - Hire a bookkeeper to work through expenses and save on CPA costs: This strategy has saved me so much time and money, I can’t recommend it enough. My bookkeeper goes through my expenses + revenues, categorizes and then in puts them into QuickBooks. She is incredibly savvy at helping me classify expenses to maximize my deductions.
Because her hourly rate is substantially less than my CPA’s, and she does most of the leg work, I end up paying half of what other business’ pay for their tax prep.
4 - Create Folders: This one is so simple, but works wonders. Create 3 folders labeled “Taxes [year]”: one for your email inbox, one on your computer, and a physical folder for your office/desk. Throughout the year move emails, documents, receipts, letters etc., into their respective folders. At the end of year when you’re looking for that one property tax statement, or receipt - you’ll know exactly where to look for it!
5 - Utilize my list of most common business tax deductions to save yourself as much $$ as possible! - Deductions are everything! And if you’re not sure what you can and can’t deduct, head over to an earlier blog post I wrote with the most common business tax deductions you should be taking.
6 - Pay As You Go: This one applies to your personal taxes as much as your business’ - pay regularly/quarterly to avoid massive hits at once.
Most states allow you to pay your state’s estimated yearly taxes on a quarterly basis - in CA that means 4, $200 payments, instead of 1, $800 payment. $200 every 3 months sounds more manageable and doable than one month just being out $800.
Pay your income and/or payroll taxes as you receive cash payments, or diligently save 30% of all cash received knowing you’ll probably owe most of that in taxes. If you’re paying yourself as an employee of the business, I strongly advise you run payroll through your business rather than withdrawing $$ from the business account and calling it an advance against your year-end dividend.