Are Taxes Holding You Back from Starting a Business?
It is pretty common among business owners for taxes to be scary AF. As a business owner, income tax season can be a huge fear every year, or you can get excited about it by getting your shit together with your numbers right from the start in your business! If the thought of owing money at tax time has you dragging your feet on starting a business, or not taking action to grow an existing business, I’ve got you! Let’s start with a quick mindset flip on owing money at tax time when you have a business: owing money means you have a profitable business! That is an awesome thing! So, let’s start tracking your business numbers and planning ahead to ditch the stress.
Let’s look at a few different scenarios when it comes to tax time!
Worst Case Scenario
Tax season is here and you just sat down to do your bookkeeping for the whole damn year, which sounds overwhelming just reading it. The stress hits you! When you finally get it all together… you owe! Do you have money set aside? If the answer is no, you’re now in a panic wondering how you will pay the government all of the money you owe them! Now you start to think about interest payments and potential penalties for filing late! As a business owner, this is a scenario you do NOT want to be in! But if this is your yearly routine, know it doesn’t have to be this way. There are ways to avoid tax season stress!
Best Case Scenario
You’re fully prepared for tax time! It’s early January and because you have been doing your bookkeeping all year long, you know your numbers and you don’t have a box full of receipts that are screaming at you. You’ve got clear systems in place to help you stay ahead of the game all year. And the best part? You’ve been saving all year too! You’ve got money set aside to pay your taxes and you’re pretty sure you’ve got a little extra that you can use for whatever you want after you’ve paid your taxes IN FULL!
So how can you get to the best case scenario?
Strategy and Planning Ahead
Planning ahead for tax season does not have to be the time consuming thing you may think it is. With solid systems in place to track numbers and automatically set money aside for tax season, you will SAVE loads of time, money and stress come tax season. Here are a few things to consider when making a plan to keep on top of bookkeeping and taxes:
Know Your #’s! - I’ve said it more than a few times, but I’ll say it again! Know your business numbers! It is so important to know how much money is coming into your business, as well as your business expenses. Tracking these things regularly will give you a clearer picture of your income, save you time next tax season and keep your stress levels LOW.
Monthly or Quarterly Net Income - This is one of the most important numbers for you to know within your business. To calculate this number, use this simple equation: Income - Expenses = Net Income
When you know your net income, you can plan for tax season, as well as make better business decisions by knowing if you have a profitable business.
Regularly Save Money for Taxes - Saving money regularly for taxes will have a HUGE impact on your stress level during tax season. To eliminate some of the things that may be holding you back from saving for your taxes all year long, I want you to start saving a % of your business income. This way you only need to know one number and you’re good to go. This number is going to vary significantly based on what type of business you have. For a service based business with low expenses, this number is going to be a lot higher than for a product based business or a business that has larger business expenses. How can you determine what your % should be? There are a few ways you can get started with this. If you’re an established business, you can look at numbers from a previous year. If you’re a new business or in a season of growth, you can use online tax estimators or better yet, to talk to a professional. I always recommend bumping up your % a little bit. Your accountant recommends you save 15% of your business income for taxes? Try and save 17-20% so you’ve got a little extra cushion. It’s always better to save too much than not enough. BONUS - By setting aside money regularly and adding a bigger %, you could be giving yourself a bonus at tax season! Imagine saving money for taxes each year and having a surplus leftover once taxes are paid!
Do NOT mix Business and Personal Finances! - If you have personal and business finances mixed together, it makes tracking your business numbers a disaster and ends up taking you a lot more time and costing you money. When you don’t separate business and personal, and you rely on receipts for tracking business expenses, you WILL miss some expenses! Even if your business is brand new and small, I highly recommend getting a separate account right away! When you’re just starting out, depending on the rules of where you live you may be able to start by adding a new personal account for your business. That way you can have separation without adding in a lot of extra costs.
Make a plan for your money and business! It will ensure less stress during your tax season, and maybe you’ll have a surplus to give yourself a bonus! If making a plan to be ready for taxes and putting systems in place to keep track of your business numbers monthly has you worried, it’s time to put me in your corner. CLICK HERE to book a no charge 30 minute Discovery Call to find out how I can help you and if we’re a good fit to work together! Stop stressing and get excited about your business numbers!
Sherry
