Is April always one long blur for you, full of stress that’s compounded by anxiety and intensified by confusion? Your passion is growing your business. Having to screech to a halt every spring and tend to taxes can range from a minor inconvenience to a major meltdown, depending on how you treat tax prep throughout the other 11 months.
Forbes advises small business owners to consider taxes “an ongoing process that needs attention throughout the year in order to be successful.” Good in theory, right? Here’s how to put it into practice.
1) Spend Quality Time with Your Records Every Week
Whether you’re a freelancing independent contractor or a growing small business with employees, keeping your records up-to-date consistently will become a natural habit the more often you discipline yourself to do it. If it’s any incentive, not doing this on a weekly basis can result in a lot of missed opportunities (read: money) come filing day.
To ensure you’re reducing your taxable income at every step, review and save all expense receipts, go over your payables and receivables for that period and be sure they are logged, and review credit card transactions and cash flow. If you need help, get help! If you’re not prepared to hire an accountant, use accounting software to record everything electronically. And be sure to back up all of your electronic files to a remote location. Many cloud storage services are free.
2) Get in a Deduction State of Mind
Start finding effective ways to increase your expenses now so that you can maximize business tax deductions next April. Do you need new office equipment? Are you making charitable donations throughout the year? Do you need to take a career-oriented class? But don’t overlook the smaller items, such as magazine subscriptions and petty cash purchases.
Keep track of fully deductible state sales tax paid on large purchases like equipment and vehicles. Interest you pay on credit cards, loans, overdue bills, and bank fees can all be deducted, so track, track, track! Automobile costs like tires, oil, insurance, and parking fees also count. Remember that if you work from a home office for which you claim a deduction, any business driving you do from home to another location and back home is deductible mileage. Business News Daily recommends a great free tool called Deductr for simplifying expense tracking.
3) Get Off the Paper and Go Online
Even if you’ve been resistant to moving away from a paper trail and into digital commerce, it’s an extremely efficient way to transact business and access records. Use online banking, online bill pay, online credit card processing, and online accounting.
4) Feather Your Retirement Nest Egg
Have you established a Roth IRA, a SEP, or a Keogh plan? Do you have access to a 401(k)? If not, prioritize this as not only a way to reduce your annual taxable income, but also to get serious about ensuring that you’ve got something waiting for you at the end of your entrepreneurial rainbow.
5) Hire Independent Contractors
There has never been a more lucrative time to be a freelancer! Small business owners can take advantage of this self-managed resource explosion by using freelance workers in nearly every department of their business. Marketing, content writing, social media, direct sales, IT, web design, accounting, and general office support are just a few of the areas in which hiring independent contractors instead of employees can save you big money in payroll taxes and benefits.
Be sure you’re clear about the difference between an independent contractor and an employee, as per the IRS definitions. Caron Beesley at AllBusiness.com distinguishes between the two classifications this way:
“Independent Contractor – The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Essentially independent contractors are considered to be in business for themselves. They take care of their own tax obligations and benefits.
Employee – Anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”
Make 2015 the year in which you resolve to stay on top of your records and tax materials—and stick to your resolution! Your return will be accurate and complete, and you’ll sleep a whole lot better before, during, and after April 2016! Here are some other great helpers recommended by Business News Daily to support you in accomplishing your tax goals.