How to Get Through Tax Season Pain-Free: A Guide for New Entrepreneurs
It’s that time of year. Birds are chirping, everyone is getting engaged, and you’re married—to your business. Which means, you’re doing your taxes (hopefully sometime before Monday).
Tax season sucks. It sucks even more if you have your own business, because you have to give away lots of your hard-earned dough (okay, this is true for everyone), but you also have to pay taxes on your first quarter's estimates for that year. It’s like adding insult to injury. Or more money to more money.
Plus, you have to compile all of your earnings, 1099s, and W-2s, collect receipts, and look back and wonder how on earth you spent that much money on Uber rides, the perfect pens for your to-do lists, or, in my case, Chop't salads and iPhone chargers. As a new entrepreneur or a first-time freelancer, the process can be really, really overwhelming.
So, I’d like to offer some advice on how I coped this year (besides really giving my tear ducts a run for their money) to help you out in the years to come. A few tips, from one entrepreneur to another.
If I were a cheerleader, I would definitely make up a chant to “Be, meticulous! Be, be meticulous!” Before I started FinePoint, I thought receipts were for babies—they were just little slips of paper I used to pass my phone number to cute guys who probably weren’t going to call me anyway. Now, I am the Stalin of receipts.
I recommend having a separate section of your wallet where you keep receipts that you can write off. Take them out periodically and record them in an expense Excel spreadsheet—I personally do this weekly while watching the Kardashians—and then file them in envelopes by month.
Along similar lines, put all of your expenses on one business credit card so you can look through the statements and add them all up at the end of the year. Same goes for your business checking and savings account. When you have all of your expenses organized in just a few places, it makes collecting everything very simple.
Also, write down everyone you’ve given a 1099 to or received one from. This can be really stressful and time-consuming to do all at once, so it’s best to do it while it’s happening. Set up a taxes folder and put the papers in immediately.
Find a Great Accountant
I love my accountant. I call her with all sorts of neurotic questions. I text her emojis. And we will both tell you: You should definitely not be going at this alone. Taxes are complicated, and if you have employees and investors and investments, it’s that much more confusing. Frankly, unless you’re an accounting entrepreneur, you should stick to what you’re good at. Believe me, a great accountant is worth her weight in gold.
Ask around to find out who your entrepreneur friends use, and then interview a few people. Really take the time to talk to them and find an accountant you like.
Remember to Save for This Time of Year
This year was a rude awakening for both me and my bank account. My business is growing, which is awesome, but I also only sort of prepared myself for how much more I was going to owe.
My point is, you must budget for tax season. Know roughly how much you’re making—in fact, overestimate—then subtract the varying taxes from that amount and have it directly deposited into a savings account labeled Take My Money Away. And have a lean first quarter, spending-wise. You're going to have to fork over a bunch of money, and it can take a while for your contracts for new business to roll in.
The good news is, if you’re in a pinch and can only pay part of what you owe, you can set up a tax plan online with the IRS that allows you to pay the total amount over time in installments.
Just Do It
I know—taxes feel as scary as the boogey monster. Or, in my case, one terribly scarring episode of Buffy the Vampire Slayer where the devil is reincarnated in a children’s hospital. You want to put the whole process off as long as possible while hiding under your bed and plotting to run away.
But the truth is, if you’re organized, doing your taxes really shouldn’t take as long as you think they will. In fact, I bet you’ve spent a lot more time worrying about your taxes than it actually takes to do them.
So just do them, and then reward yourself—with a manicure and pedicure, a nice dinner, enough Hershey bars for every resident of Iceland, whatever. Though, limit yourself to something $100 or less (because the whole point here is to be saving money now that you’re handing a bunch of it over). Even better—reward yourself with something that doesn’t cost any money.
In any case, at least go buy yourself a bottle of champagne, because you’ve done one of the hardest things out there. No, not taxes—starting your own business.