Tax Season and Money Management
This year, I hired an accountant to help me with my finances. Every Monday of 2021, I’ve sitting down (via Zoom) with my new accountant to figure out what I should and shouldn’t be doing when it comes to my money. This past Monday’s meeting left me shook because I found out that I might be paying more in taxes this year than a former billionaire President (lol). While I haven’t been doing everything correctly, I’ve worked really hard to be prepared. Here are some of the lessons I learned from the tax and money mistakes I’ve made as well as some tips I’m using to be even more prepared this year so that my tax bill won’t be as surprising.
1. Talk to an Accountant
I feel like a broken record saying this but it is so helpful to outsource. Stop relying on your uncle or your mom’s friend to do your taxes. Yes, anyone can figure out how to do taxes, but that doesn’t mean everyone should. Including you! An accountant can be a peace of mind, especially if you have a lot of moving pieces with your taxes. For example, if you own a small business, have multiple streams of income, or subcontract, you have specific needs that an accountant can help you with.
2. Know Your Eligible Deductions
Deductions are expenses that reduce your taxable income and enable you to pay a smaller tax bill. They include things like business-related purchases, mileage, kids, etc. Learn which expenses are deductible and which expenses aren’t. This is where an accountant comes in handy especially because they can help you think of eligible deductions you might miss and they also help prevent you claiming deductions that aren’t applicable (which comes with consequences).
3. Figure Out What Kind of Small Business You Are
For small business owners, knowing what business designation you should be filed under is very important. There are a lot of things I couldn’t take advantage of this year because I am a one-member LLC. That designation was appropriate for me when I first started because it was the simplest one and had the most information. However, I had been setting aside a savings for each of the girls from each of my partnerships. I previously learned that I could set aside a payment from them (another pro tip). Turns out, you have to be an S Corp for that to work. So now I am refiling my status.
4. Save for Your Taxes
To a certain extent, I am freaking out about paying taxes but I am also somewhat calm because I anticipated this. I have been setting money aside as a tax savings account since last year. Fingers crossed my taxes owed don’t exceed my savings lol!
5. Use Available Resources [like QuickBooks]
Connect all of your business accounts to QuickBooks. I use it to track my receipts, invoices, mileage and other expenses One pro tip is that you reconcile everything monthly to make it easier at the end of the year. This allows you to simply print out a profit and loss report.
6. Don’t Overclaim
Be careful not to claim too many deductions because you don’t want to come in at a loss. It might feel good this year because you’re not spending any money on taxes but if you have a scenario where you have to show that you’re business is successful (such as when you’re buying a house), this could give you some trouble.
7. Talk About Money
I love to talk about money. That’s because we didn’t really talk about it growing up and I think it’s important to change that for our future generations. You can only build generational wealth if you know about money. Talking more has allowed me to learn more.
8. Pay Your Taxes!
Paying taxes is not necessarily a bad thing because the goal is to make money and paying taxes means you are making money! So don’t let it stress you too much if you can help it. Just prepare as much as possible, save, and keep making your money!