Do self-employed taxes make your head spin? Are accounting and taxes keeping you up at night? For most people taxes and accounting aren’t much fun, but you have to deal with them right? Some things we have to learn from our own personal experience while other things we can learn by simply following the best practices of those who have gone before us.
A few years ago I started an accounting firm where we help entrepreneurs with taxes and accounting. At our firm, we use the latest technology to make it as easy and painless as possible for our clients. Over the years, I have seen self-employed individuals make the same mistakes over and over and over. I have seen tears being shed and so much financial stress and frustration.
In this introductory blog, I want to help you learn how to start off on the right foot or get on your taxes on track. You may have heard or read the statistics that over 90% of small businesses fail. The numbers don’t lie, however, let’s shift your focus on the entrepreneurs who are succeeding. What are they doing that you should be doing? What are they doing differently?
They have a system and you need one too if you want to stop stressing over taxes. Implement these best practices to develop the financials habits necessary to have solid finances.
7 STEPS TO DOMINATE SELF-EMPLOYED TAXES
Separate Business & Personal Accounts
It’s easier to find things when they are all in one place right? Think of it like this, you keep all your food in the kitchen so when you get ready to cook you have everything you need in arm’s reach. You need to do the same thing with your money. If you have to sort through all your personal expenses too, you’re making things harder on yourself when it comes to your self-employed taxes. Open separate business checking, savings and credit accounts so you can keep all of you self-employment or business activity all in one place.
Know your tax obligations
This is probably the biggest issue I see with self-employed individuals. I know that taxes are overwhelming but you have to face them at some point. Why not be proactive about it since it deals with your money and the IRS? Many individuals will use an IRS form called Schedule C to file their taxes. This form is an addition to your personal tax return and has the same due date as your personal taxes. If you want to get into the details and see example cases you can check out our online course that breaks this information down in a way that easy for anyone to understand.
Set up a bookkeeping method
This is the game changer when it comes to self-employed taxes. When you keep up with the money coming in and the money going out throughout the year, tax time can really be a breeze. You don’t have to be an accountant to do your bookkeeping, however, you need a good software, proper setup and discipline to review your transactions consistently. If you are just starting out, there is a great app called Quickbooks Self-Employed that can help you. You can do bookkeeping right on your phone!
Know how to pay yourself
As a CPA this is one of the questions I get from clients the most. If you are going to start a business to make a profit, one of the very first things you should be interested in is how to properly pay yourself. The answer to this question depends on how you are legally operating your business. Are you a sole-proprietor, a Limited Liability Company (LLC) or an S-Corporation? Once you know how you are operating, you can better understand how to pay yourself and the tax forms and obligations. At a minimum, you should include notes in the memo lines of your checks or bank transfers to indicate you are paying yourself as the owner of your business.
Set up a method for tracking receipts
Your receipts are the proof or substantiation that you spent money on legitimate tax-deductible expenses. If you are ever audited you will want to have them available. The best way to achieve this is to save an electronic image. You can do this simply by snapping a picture with your phone or using an app on your phone. Keeping the paper copies in a bag or shoebox to deal with once a year just doesn’t cut it anymore. The receipts can fade, and if you can’t read them, you can’t deduct them.
Set up a method for tracking mileage
If you use your vehicle for business, you must have proof you are using it for business. The proof is usually in the form of a mileage log. The concept is to know how many miles you drove all year and of those miles how many were for business. There a tons of free and paid apps to help you. To get started, you go to the app marketplace on your phone and do a quick search for “mileage tracker”
Save a % of income for self-employed taxes
This last step is the final piece of the puzzle. After you have completed all the other steps, you should decide on how much you are going to set aside for your quarterly tax payments. No matter what percentage you choose, they key here is to save on a regular rhythm. If you are paid every 2 weeks when you receive your payments, set aside money to pay your taxes in a business savings account. When you do it, you will have the funds available to pay your quarterly taxes when they are due.
Self-employed taxes may be confusing and can cause you stress if you let them. When you follow the 7 steps in this blog, you will dominate your self-employed taxes. These actions set the foundation to keep your business finances in check and ultimately give you peace of mind.
If you have ever been overwhelmed by all the rules or information you don’t know about self-employed taxes, the Entrepreneur Accounting and Tax Academy has the tools and resources to help you succeed. We’re on a mission to empower entrepreneurs to build the business of their dreams on a solid financial foundation by combining expert knowledge and latest technology.
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