How to Prepare your Digital Business for Tax Season
So I bet you're wondering as a solopreneur, how in the heck will I get my business ready for tax season. Last year, you really killed it! Raised your prices, made consistent income, and even began paying yourself.
Now it's tax season and you're like 👀... Well have no fear!
I want to share with you some tips to get your small business ready for tax season.
From a bookkeeper's perspective.
Before we get any further, I have to tell you something.
This post is specifically for sole proprietors and single-member LLCs. It will help you begin the process of getting your Schedule C ready for your tax pro to put together.
Now, that we got that out the way, here's how to make your tax season a breeze.
1. Get on an accounting software!
The first thing you want to do is make sure that you are an accounting software.
Yes.
You thought I wanted to say something else, weren't you.
But no.
Get on an accounting software that is the best specific for you. So, if you're using a CRM, see which accounting software works best with that.
My service-based clients and I LOVE Dubsado. This software currently works best with Quickbooks Online.
If you have an e-commerce business you probably use Shopify. I love how Xero seamlessly works with Shopify.
In my bookkeeping firm, we support our clients with QuickBooks Online and Xero.
I love both softwares but what sets Xero apart is that it's made for the business owner in mind.
If you just started your business journey and want a lower barrier of entry Waveapps is a great start. It has a much lower barrier of entry to get you started and creates pretty good financial statements.
2. Track all your income
You're most-likely going to get 1099s in the beginning of the year. It's so important to cross-reference them with your accounting software to ensure accuracy.
1099s range from 1099-Ks from your payment processor or 1099s from contracted work.
PayPal will give you a 1099K if you collected payments of about $20K and over. Stripe, another payment processor, will send a 1099K once you hit a certain threshold.
Your 1099s will come from contracted work where you got paid $600 or over in 2018.
If you hired contractors and paid them via check, cash or bank transfer $600 or over, here's a post for you!
🗣 Influencers working with brands, its especially important that you're gathering all your 1099s.
And guess what 🙈, even if you don't a form, you're still responsible for claiming income! And if you collected self-employed income $400 and over, like I know you did, it's mandatory to file taxes on it!
3. Understand your deductible expenses
The third thing that I want you to do is understand your expenses or track those expenses.
The first way to better track expenses for your business is by having separate accounts. These checking and savings accounts are separate from your personal.
I know this might be hard if you're just starting out, but I guarantee you. If you just even separate it, even if you have a couple of transactions a month, it'll make your life so much easier. You also want to know what tax deductions are great for your business.
Once you separate your biz and personal money, everything gets a bit more clearer.
In another blog post, I talk about some tax deductions you don't want to miss for your business.
Tax deductions allow you to potentially decrease your taxable income.
But... you have to figure out your tax strategy.
If you're wanting to buy a home or get approved for loan, it's ideal to avoid deducting everything you can think of. This way, you don't show low income on your tax returns that can decrease your chances of approval.
If you liked this post, I'd appreciate it if you shared with someone who you know will need it! Also, if you're looking for a dialogue about this, we'll be going live in the Facebook Group, the The Major Margins Club!
