4 Tips to Prepare for Tax Season

Contrary to popular belief, tax season is a year-round experience. Although the deadline is April 15th for most people (3/15 if you have a partnership or Scorp), the IRS and the state that you operate in actually expects you to make quarterly estimated tax payments throughout the year. Here is a helpful link on when the estimated tax payments are due. In general, we typically advise our clients to set aside between 25 – 30% of your profit for your estimated tax payments. Note, that just because you made estimated tax payments does not mean you will not owe when it comes time to file your taxes. What we hope is that with accurate bookkeeping and tax planning is that the estimated tax payments are as close as possible so that there are no surprises when it comes time to file. Now that we have got that baseline out the way, here are some helpful tips and things to consider as you prepare for the upcoming tax season.

1. Organize records about your business income for the year

• If you are not currently using an accounting software to track your income and expenses you should first start with you CRM (Honeybook, Dubsado) and Payment Processing Systems (Stripe) and run a report for Income earned to date.
• Note: Be sure you are not looking at the income that hit your bank as this is net of fees

2. Organize your documentation for your business expenses

• Remember that deductible business expenses must be ordinary and necessary expenses for your business. 
• Make sure to keep good records of your receipts. The IRS requires business owners to produce receipts for any expenses that are 75.00 or more. 
• Some common deductible expenses to keep track of:
  • Advertising and Marketing – ads, website costs
  • Insurance – Business Insurance, Cyber Security Insurance, Errors and Omission, General Liability
  • Travel – has to be related to your business. 
  • Training and Professional Development Costs
  • Meals – must be meeting with other people related to your business (e.g meeting with a client, business partner, coach, lead, business travel meals)
• Mileage – There are several tools available to track business mileage. If you do a lot of driving in your personal car for your business it may be worth investing in software to help you track your mileage. Some options here that I would recommend are – MileIQ or Hurdlr. 
• Professional Services – Lawyers, Accountants etc.

3. Prepare 1099- NEC for Contractors

• You are required to provide a 1099-NEC for anyone you paid more than $600 to during the year for services who is not an employee of your business
  • Note the contractor must be an individual or partnership. Payments made to corporations do not require a 1099
• As a general rule of thumb, it is best practice to collect a W-9 from all U.S. vendors prior to issuing a payment. This ensures that you have the necessary information from the business owner to prepare a 1099-NEC at the end of the year.
•  If you forgot to do this I would recommend running a vendor spending report in your accounting system to identify who you paid at least $600 to and send a request for them to fill out this form

4. Request an extension if you need one and start planning for next year

• Reach out to your tax preparer to come up with a plan
• If you think you will need time, its in your best interest to ask your tax preparer to request an extension for you.

While I do not offer tax preparation services, I would love to help you get your books in order for 2023. Bookkeeping is not just a means to getting your taxes done, but it also helps you as the business owner have a pulse on how your business is performing to inform your decision making. Not to mention, if you are currently feeling the overwhelm that comes with filing your taxes – having accurate, up to date books throughout the year will hopefully put your mind at ease next time around. If you are looking to take your business to the next level in 2023, I would love to work with you. Fill out the contact form on my site to learn more about my services and how we can work together.