We’re quickly approaching that time of the year, when taxes begin to really stress us out. As an entrepreneur, tax time can be even more overwhelming if you’re not doing to work on the front end to prep for tax time.
In this episode of Clocking In, I’m sharing the things that I do in my own business to ensure I have a smooth (and rewarding) experience at tax time.
From handling my own bookkeeping and working with a CPA to researching potential deductions and paying quarterly taxes, I’m covering it all in this quick episode!
Please note, I am not a tax professional, therefore, the content I’m sharing in this episode is just my own experience. Please consult with a local CPA to ensure you’re managing your finances and taxes appropriately for your business.
Clocking In with Haylee Gaffin is produced and brought to you by Gaffin Creative, a podcast production company for creative entrepreneurs. Learn more about our services at Gaffincreative.com, plus you’ll also find resources, show notes, and more for the Clocking In Podcast.
Review the Show Notes:
Hire a CPA (Certified Public Accountant) (1:16)
Working with an Accountant (1:47)
Use Separate Bank Accounts (2:39)
Pay yourself + Pay Yourself a Consistent Paycheck (3:07)
b) Knowing How Much You’ve Made at any time
c) Simplified Bookkeeping
Use Quickbooks for Bookkeeping (4:15)
Research and Understand Tax Deductions (5:01)
Pay Your Quarterly Taxes (5:32)
Consult with a CPA (7:30)
Review the Transcript:
Hey y’all. Welcome to the Clocking In Podcast, the podcast for entrepreneurs and professionals making their way in the working world.
I’m your host, Haylee Gaffin!
This podcast is produced and brought to you by Gaffin Creative, a podcast production company for creative entrepreneurs. Learn more about our services at Gaffincreative.com, plus you’ll also find resources, show notes, and more for the Clocking In Podcast.
So, let’s clock in and get to work.
Tax season—it’s miserable, right? No matter who you are, business owner or not, tax season can be intimidating.
As an entrepreneur, I’ve come to find a simple system to help me prepare for tax seasons. This isn’t professional accounting or business advice, because I’m not a tax professional. I’m just here to share my guide for prepping for tax season for the entire year so that you can make sure 2021 is the year you’re ready for it.
Many of these steps are going to be common place recommendations, but they hold so much truth and value.
I want to also share that if you didn’t do any of these things last year, it’s not too late to start them!
1. Hire a CPA – Certified Public Accountant
Hiring a CPA changed EVERYTHING on the admin side of my business. Sometimes I like to think God sent me an angel when Shelbye came into my life. Silly, right? Honestly though, this time of the year would be miserable for me if I didn’t have someone to hand over all of the details to.
Here’s what working with my accountant looks like:
As of right now, I don’t have a ton of expenses in my business, just a few tools, a contractor every now and then, and new gear 2-3 times a year. So I don’t have her team helping with bookkeeping. I’ll get into bookkeeping in the next step, but I track everything, keep documentations, then send over all the details when tax time rolls around. Shelbye and her team will do all of the hard work that my non-tax oriented brain don’t understand or like to do, and I get to sign a piece of paper that says hey, you get X amount of money back this year.
That alone might be the reason she’s my favorite colleague.
2. Use separate bank accounts.
If no one has told you, you need to have a business account and a personal account. Stop mixing your expenses and making tax time ten times harder on you than it needs to be!
You’ll be able to better categorize your expenses and it’ll make your monthly or quarterly bookkeeping so much easier.
This next step is a two parter:
Pay yourself, but also pay yourself the same amount every month (we’ll get into this in an upcoming episode).
You’re in this business to make an income, so if you’re not actually paying yourself, do it. And make it easier on your personal finances by finding a happy amount that you can afford to pay yourself monthly. I’ll dive deeper into how I approach this in a later episode, but I pay myself the same amount every single month for a few reasons:
I love the consistency because my bills don’t change month to month.
At any time throughout the year, I can easily calculate in my head exactly how much I’ve paid myself.
It makes your bookkeeping process so much easier than paying yourself only when you book big projects.
I know, many of our businesses are seasonal, but friends, you can make this work! Like I mentioned, I will dive deeper into this in an upcoming episode, so keep an eye out for it!
Use a tool like quickbooks and track your receipts.
Stop doing it all in paper envelopes and trying to keep track of it all on your own. There are automations and tools that will do this for you.
I personally use Quickbooks Self-Employed because it has all the tools I need for my business.
You can also set up automations in Quickbooks! For example, I use tools in my business that I pay for on a monthly basis, so I have automations set up in quickbooks to automatically categorize them for me so I’m not overwhelmed at the task when the time comes.
Additionally, you can also track your mileage for business so that you can deduct it at tax time… speaking of which, let’s get into the next step.
Research and understand your deductions.
Yep, you have them but my best recommendation is to check with your accountant on whether or not you can claim them.
The first time I sat down with Shelbye, she helped me build a list of potential deductions… including my home utility bill at a time when I didn’t have a studio space.
So, consult with an accountant and take detailed notes regarding what you can and can’t claim on your deductions when tax time rolls around.
Pay your quarterly taxes.
Yes, as a self employed person, you have to pay your own taxes and do it quarterly.
Now, if you’re not a business owner, contractor, or freelancer,and you’re wondering why, it’s because we don’t have an employer paying taxes or withholding them on our behalf.
So what does that mean? Most will tell you that you’re good to pay 20% of your income to quarterly taxes… but there are times when that may not cover everything.
My secret to this, is I pay 30% in when I pay my quarterly taxes. Every time I tell another freelancer, they freak out at the thought of this, but let me explain.
In the years that I’ve been paying my own taxes for my entire paycheck (that’s 4 years, by the way), I’ve always gotten a tax return. I’ve never had to pay at tax time.
Additionally, I’ve never stressed about having to pay in when tax time rolls around, because no matter how few deductions I have, I know I’ll be getting something back.
You don’t have to follow my exact method, but know that it is possible to not worry about paying in thousands of dollars every spring… imagine the possibility of getting thousands back.
You might be asking, how do you afford to pay 30% of your check in? Well, I charge enough to cover the bills I need to pay, to live on, and also manage the expense of paying taxes. Everyone pays taxes in some form or fashion, we’re just the group of people that have to physically make the effort to take the money out of our own account and pay it in to the government.
Now that we’ve reviewed my approach to tax season, you’ve learned that there are very simple things you as a business owner have to do to prep for your taxes.
If you take away anything from this episode, please consult with a CPA in your area. Make it easy on you so that every tax season, you can sit back, relax and let your CPA do the hard work.
This has been another episode of the Clocking In Podcast. You can find the show notes for this episode and more at gaffincreative.com. Thank you so much for your listenership and support! If you loved this episode, I’d be so honored if you’d leave me a review in the Apple Podcast App. Until next time, I’m your host, Haylee Gaffin, clocking out.