Taxes. Most of us don’t love them. They can be confusing enough for you as an individual or family. Doing them as an entrepreneur can, and probably should, make someone with even the strongest sense a bit nervous. Judy shared some tips on thriving during tax time as an entrepreneur, which I am sharing with you with permission.
How Entrepreneurs Can Thrive During Tax Time
Most entrepreneurs don’t prepare themselves for efficient tax filing or give appropriate consideration to their client invoices, receipts, etc. As they try to get things done in a short span of time, they unwittingly commit errors and mistakes that come back to haunt them.
There are true stories of entrepreneurs seeing their business sink after tax audits, so not preparing for the tax time can kill your dreams of entrepreneurial success. Fortunately, there are measures you can take to make tax filing a breeze.
Here’s what you can do:
1. Do It Yourself
DIY tax software is making tax reporting easier and easier. Options like these ensure that you schedule tax payments on the basis of applicable frequency, pay on time as you follow an actionable calendar, and find variances between liabilities and deposits through on-demand balancing so that you can correct errors accordingly. As a result, you can create balance totals and fulfill tax obligations during the tax time right from your computer with just a few clicks.
2. Pay Quarterly Estimates
Many entrepreneurs neglect paying quarterly tax estimates when they receive self-employment income for the first time. Most of them are accustomed to seeing withheld taxes on their paychecks. This might seem like an obvious scenario, but it’s something that happens often. Therefore, it’s important that you work with a bookkeeper to figure out how much is due each quarter, factoring in any city, county or state taxes that your company may owe.
3. Accelerate Expenses & Defer Payments in the Last Few Months
Did you deliver work in the second half of December? Request to receive payment in January. And make any purchases you planned to make in January before the end of the year. By making purchases earlier and taking payments later, you’ll be able to reduce the amount of money that is recognized as your taxable income during the tax time. For most entrepreneurs, the next year won’t be 100% certain, so your best bet is to capitalize on the opportunity to decrease your tax liability during the upcoming tax period.
4. 401K Is Your Friend
When entrepreneurs make contributions to their 401K, they reduce their taxable income. That means you have to pay less money to the federal government, and this will enable you to avoid tax overpayments. No taxes are due on the money deposited in 401K accounts until it’s taken out for retirement life. All the documents related to 401K contributions should be stored safely and attached with tax form copies during the filing period. 401K and similar accounts can be opened through most online brokerages.
5. Do a Bit of Charity
Charitable giving lowers your payable tax amount just like any other deduction. Every dollar donated to registered charity becomes a tax deduction, like a standard deduction. However, charitable contributions should be done in programs executed by qualified organizations. You can’t deduct contributions made to specific candidates, individuals or political organizations. Also, you must show proof from the qualified organization for any deduction claims above $250, which can be a bank record or a written acknowledgement.
Follow these tips to be apt at tax filing during the tax time. You’ll also have a peace of mind knowing that you’re prepared to meet deadlines and reduce your tax bill.