The passing of April 15 often brings a collective sigh of relief amongst the entrepreneurial small business owning community in the U.S. For many, it signifies a huge hassle taking its rightful place in the rearview mirror. But here's the thing: it doesn't have to be this way. Tax time does not have to be some painful annual ritual. Here's how...
Take Pictures of Every Expense Receipt
Start today. For the very next business expense you incur, take a picture of the receipt immediately upon purchase. Don't even worry about uploading it into Kashoo at that moment. You can do it later. Data entry is the single biggest hurdle to good bookkeeping and if you get in the habit of capturing the data in-the-moment, you can process it later. It may sound childish, but one of the best motivators for taking pictures of expense receipts at the moment of purchase is that you look really cool and professional doing it. (Next time you're at Staples, try to impress the checkout clerk by immediately taking a picture of your purchase receipt. They likely won't care, but just tell yourself they do.)
Mark Your Calendar
Taxes don't just happen on April 15. For many small business owners, they happen throughout the year. If you're self-employed in the U.S., you likely have to deal with quarterly estimated tax payments. At the Federal level, Q1 is due on April 15, Q2 is due June 15, Q3 is due Septemeber 15, and Q4 is due January 15 of the following year. It's easy for these dates to sneak up on you, so open up your iCal, Outlook or Google Calendar right now and mark the tax dates that are relevant to your business. Not sure which ones apply? Talk to your tax prep pro. They'll know. And be sure to get familiar with your state and local tax deadlines too.
Bonus tip: If you've been in business for a few years, you likely know your tax dates throughout the year. The next step you can take is to budget accordingly. If you know you regularly are paying quarterly estimates of, say, $5,000, budget $20,000 for the year.
In the same vein of snapping photos of every business expense receipt you incur, you should also digitize everything tax related. What sorts of things? Think mail correspondence between your business and tax or revenue agencies. Everytime you get a letter from the IRS or your state revenue department or your local revenue department, take a picture of it. Then title it and push it to a file in iCloud or Dropbox. Why do all this? Well, there's nothing worse than having to scramble for a tax document when you really need it.
Bonus tip: if you have an accountant, send a copy of everything you scan to him or her. It creates a good paper trail and they might see something you're not seeing.
Optimize Your Bottom Line
Your tax liability is more or less calculated by your P&L report's bottom line, aka, your profit. Keep tabs on your profit on a regular basis, not just at year end when you need to figure out taxes. Run P&L reports monthly and quarterly so that you can make informed decisions that can positively affect your tax exposure. For example, if you know your profit margin is going to be larger than normal for a given quarter and you have a looming equipment need (such as, say, a new computer), that might be the quarter to pull the trigger on that purchase. Not only will you have the cash flow to do it, but you will reduce your bottom line, which in turn, reduces your tax burden. Of course, not all cases will be the same. And it can't hurt to talk to your accountant about optimizing your bottom line.
So here's to another post-Tax Day year. Implement good habits now and you'll find next April 15 a lot less stressful.