Ah, taxes. The necessary evil we navigate at the start of each new year. As a small business, taxes present a particularly difficult challenge. Depending on how you classify your business (LLC, partnership, sole proprietor) you may pay your taxes monthly, quarterly, or annually. Regardless, there are ways to make your small business taxes that much easier. In this article, I outline three of my favorite tools to simplify your taxes.
First, a Confession…
When I first started my business, I didn’t know a thing about taxes. Yes, I kept my receipts in a shoebox. No, my accountant and I were not friends. Yes, doing taxes each year was a type of small business hell.
So what changed? I got wise about how to organize my business all year long in order to make filing taxes easier each April.
I did that by investing in the right tools to help me navigate my small business taxes. I also did some research to better understand why my taxes are structured the way they are. And that is where we should begin.
Taxes 101: A Quick Overview
As I’m sure you’re aware, businesses are taxed differently depending on how they’re classified.
Deciding to be an S Corporation, Sole Proprietor, Single Member LLC, Limited Liability Company, or C Corporation impacts your taxes. If you aren’t sure how to classify your business, check with a tax professional to make sure you select the most appropriate option.
Why does this matter? According to the IRS, Individuals, including sole proprietors, partners, and S corporation shareholders, should pay estimated taxes each quarter if they expect to owe $1,000 or more when they file their return. This same rule applies to corporations that expect to owe more than $500.
If you fall into either of these categories, it’s important to learn how to organize and estimate your taxes quarterly (and not just annually).
This is where my favorite tools come in. Since organization is key to simplifying your taxes, get ready to organize the heck out of your business.
Three Tools to Simplify Your Small Business Taxes
One. Sophisticated Accounting Software
I say sophisticated because simplifying your taxes starts with upgrading your software. Rather than jump between three or four different free programs to track your mileage, expenses, contractor payments, and income, save time by combining your tools.
I’m a huge fan of Quickbooks for that very reason. It’s online, so it is continually updated as new features are added. I can keep track of my expenses automatically by linking my bank statements (HUGE time saver), invoice clients, and even track my estimated quarterly tax payments.
Not only that, but Quickbooks Self-Employed also offers a bundle with TurboTax Self-Employed which enables you to easily transfer your tax info when you’re ready to file.
By far the best thing about accounting software like Quickbooks is the ability to do away with the shoebox. Instead of keeping stacks of receipts, I can track a purchase through my linked bank account and attach a snapshot of the paper receipt for my records.
It requires an extra minute or two of attention in the moment and saves me hours of busy work come tax season.
Two. A Tax Prep Checklist
You can either make your own checklist or use this handy one from H&R Block. Either way, a checklist is a great tool to have on hand year-round, not just during tax season.
While this checklist helps you collect the necessary information to file your return, it also provides you with reminders of expenses that can be used as write-offs.
I recommend that you create your checklist and keep it accessible throughout the year. Refer to it when making purchases for your business, especially larger items that depreciate such as computers. Your checklist serves as a reminder to jot down the date of purchase, cost, and what percentage is for personal use (if any) so the data is there when you need it to file your taxes.
Three. A Tax Calendar
A calendar is especially useful to help remind you when to file forms or estimated taxes throughout the year. It can also help track state tax requirements, like reporting income to a state-paid family leave program or filing state business taxes.
The IRS offers a calendar that includes everything from payroll taxes to reminders that employees need to report tips earned each month.
For those who are self-employed as a freelancer or contractor, the most important events to add to your calendar are the deadlines for quarterly tax payments. Here are the 2022 deadlines to help get your calendar started:
- 2022 1st Quarter (January 1 — March 31): April 18, 2022
- 2022 2nd Quarter (April 1 — May 31): June 15, 2022
- 2022 3rd Quarter (June 1 — August 31): September 15, 2022
- 2022 4th Quarter (September 1 — December 31): January 15, 2023
If you chose accounting software like Quickbooks, it will automatically calculate your estimated quarterly taxes. You can even e-file your taxes directly from the software, saving you precious time to use on growing your business.
Keep Taxes Simple
Or at the very least, keep the process smooth and easy by staying organized throughout the year. Keeping informed is another great way to stay organized. Subscribe to the IRS Tax Tips to get ahead of tax reform and always consult with a tax professional when you have questions.
You can also learn more about small business taxes by listening to my social podcast on SOLVV, the social podcasting app. I, and two other entrepreneurs, discuss tips for preparing for taxes at the end of each calendar year so you’re ready to go come April. Sign up for free here, and follow me on the new beta mobile app.
Taxes for your small business shouldn’t be a burden each new year. Make this the year you breeze through tax season with a little more knowledge and a little less stress.
**I am not a tax professional and therefore not qualified to give tax advice. This article is simply a summary of my experience and the tools I use to help simplify my small business taxes. For more information about small business and self-employed taxes, I recommend visiting the IRS website.