Tax time is here! As we all know, filing your taxes is about as much fun as getting your teeth drilled; especially if you make any sort of money on your own or don’t get enough taken out of your paycheck.
Lucky for you I’m an organizational and business systems freak, and taxes are no exception! Below you’ll find some ways I make tax season less painful.
Pesky disclaimer: I am not an accountant (nor would I ever want to be one). All my knowledge comes from the fact that I’ve been running my own business and paying taxes for years. As such you shouldn’t take my advice as the Holy Grail of tax season, but rather take it to a tax professional and discuss it with them.
Start ahead of time.
Don’t wait until March to take a look at your tax situation. If you’ve got a regular job and know you’ll be getting money back then, by all means, get that return done ASAP! This is one of the easiest ways to make tax season less painful because all you have to do is complete your filing a little earlier!
For those of you who make any sort of income on your own (side hustle, your own full-time business, interest earned on accounts, commission sales, investment income, your Etsy shop, etc.) get into the habit of saving for taxes as you go along. An easy way to do this is using a bookkeeping system so you don’t have to keep a bunch of spreadsheets!
In my book, I talk about how I figured out my tax situation (make sure to check your state too!) and calculated what percentage of my income would probably be going to Uncle Sam. With every check or payment I get from clients I proceed to allocate that percentage into a savings account I call “Helping My Country”.
This makes your life a lot easier as you won’t be scraping for cash when Uncle Sam comes around to take his cut. You’ll also probably end up saving way more than you need to thanks to deductions. Once you’ve paid your taxes just move the extra money over to something else (I, for example, moved it over to my car fund).
Keep records all year round.
Keeping good records will definitely make your tax season less painful. I like to have regular romantic dates with my budget, but I also have a few tools I’ve learned to not live without.
Freshbooks: Freshbooks allows me to keep track of where my money is coming from and going on a monthly basis. Since I’m big on having multiple sources of income I need to see what source is working and which one isn’t.
Quickbooks Online: For the bigger picture I use Quickbooks. Or rather, my accountant uses Quickbooks and I stick to Mint lol. This is a huge life saver come tax time as it figures out your Schedule C for you.
Use One Card for Business Expenses: I separate my personal and business expenses by using a) separate checking accounts and b) separate cards. I have a business credit card I only use for business costs and any tax deductions I can make. It links up to QuickBooks with no issue so I have a running list of deductions. (It’s also the Chase Sapphire Reserve so I can rack up miles for conferences. Win!)
Speaking of deductions, if you run your own business you have the luxury of having a long list of deductions you can claim come tax time. Anything from coffee with clients and insurance premiums to travel and unpaid invoices.
Keep Documents on a Secure Cloud: My accountant recommended that I use Efilecabinet. I spent weeks scanning old documents and uploading them into the system. Now I just send PDFs to my VA and she uploads them for me. Everything is organized by year and the type of document it is (ex. bank statement, credit card statement, etc.
Pay Estimated Taxes
Estimated taxes can be confusing for those who are making income on their own for the first time (no worries it confused me too). Simply put, if you’re making your own money you should be paying quarterly taxes in April, June, September, and January of the following year.
By making your own money I mean if you’ve made over $400. It’s the IRS’s way of saying “Hey thanks for starting a business and stimulating the economy!” (Note sarcasm.)
Now, if you expect to pay less than $1000 in taxes then you can file on April 15 like everyone else. However, your taxes are one of those things you probably don’t want to leave up to chance, and this is all about making tax season less painful.
Figure out whether you want to do them yourself or hire someone.
When I was trying to make tax season less painful, I decided to use Turbo Tax. It was easy, inexpensive, and convenient to be able to file my taxes online from home. Eventually, I hired an accountant who’s gotten me squared away. I know exactly how much I need to save for taxes and he makes sure that I’m getting my deductions. He also does my bookkeeping which saves me a lot of time.
(P.S. TurboTax and Mint work great together! If you need some help with Mint, I recommend checking out The Mint Manual which was recently re-released by Investor Junkie. You can read my review here.)
I breathe much easier now come tax season thanks to the tips I mention in this article. I have an accountant I trust and I stay organized throughout the year with QuickBooks. While the initial setup of getting organized takes some time, it is well worth the effort.