Is the tax filing deadline really only a few weeks away? Hyper-organized people aside, this is usually the time of year when business owners frantically search for income statements and receipts, download tax forms, and gather the funds to pay taxes by April 15.
Fortunately, there are ways to reduce your tax anxiety in the weeks leading up to the filing deadline and all year-round. We asked accounting and finance experts (who are also Kabbage customers) for their solutions to small business owners’ biggest tax challenges.
How do I avoid getting stuck with a big tax bill?
The fear of several digits in that final “tax due” number keeps many business owners awake at night. To sleep easier, save up for taxes all year long and pay quarterly state and federal taxes, so you’re not shocked by an enormous bill come April 15.
“My advice is very simple – every dollar you make, put 25 cents aside,” says Holly Hill, CFO and owner of Hill & Hill Financial, LLC in Woodstock, Georgia. “Most people think you could have that money working for you doing something else. But you’re better off putting it in a separate account, so when tax time rolls around you’re not freaking out.”
The problem, says Amber León-Hurst, founder of PEAR Accounting Solutions in Napa, Ca., is that many new business owners don’t realize they need to pay more taxes than they did as employees.
“When you’re an employee, your employer is responsible for payroll taxes like Medicare, Social Security and unemployment,” Amber says. Sole proprietors and small business owners have to pick up that tax portion when they go out on their own. “If you save at least 25 percent of your income for taxes and you pay quarterly, that spares you from the large tax bill at the end of the year – or ending up on the constant cycle of payment plans to pay the tax you owe.”
Can I do my taxes myself?
Maybe – there are plenty of software tools that walk you through the filing steps. But doing taxes yourself takes a lot of time, and assumes you’re knowledgeable about processes like amortization and depreciation. In the end, you may get more value from a CPA who knows the ins and outs of your business – and is also paying close attention to recent tax code changes.
“Find a tax professional that listens to you and actively works to understand your business and your goals,” says Cristina Garza, owner of Accountingprose, a Denver-based accounting and bookkeeping firm. “Your CPA should act like a partner in your business, helping you to achieve your overall vision. That’s worth every penny.”
How do I keep tax records organized?
Stuffing check stubs and receipts in shoeboxes is better than nothing – but there are more productive and less stressful ways to impose order on recordkeeping. All that’s needed is to make them part of your routine.
To start, streamline the tedious process of saving paper receipts, which are easy to misplace. “Our clients use software like Hubdoc and ReceiptBank to quickly snap pics of receipts,” Cristina says. The software helps you file the images in the cloud, and if you want, sync the records with your accounting software. “It’s easy, inexpensive, and you never have to worry about losing an important receipt again,” Cristina says. “Even better, the IRS accepts digital copies of receipts as proof of payment.”
How do I know if I’m really making money after taxes?
If you suspect you’re missing out on ways to save on taxes and create more profit for your business, you probably need a balance sheet.
“It’s a very underutilized tool,” Amber says. For example, the balance sheet can help you understand why you don’t have much cash on hand, even though your profit and loss statement says you made money. Perhaps your business has been paying down liabilities like loans, which would reduce available cash. If so, the balance sheet gives you the big picture about how much cash you really have.
To stay even more organized throughout the year – and to know at a glance how you’re doing in terms of revenue and expenses – consider getting a bookkeeper. “They can do all the record-keeping, giving you time to focus on growing your business,” Cristina says. “Once tax time comes, they can deliver everything your CPA needs without you getting weighed down with busy work.”
Need more advice on reducing tax-time stress and running a smart, savvy business? Check out the Kabbage Greenhouse.
Kabbage does not provide tax, legal or accounting advice. This communication has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors.