The pain is still raw. Tax bills across America caught many people off guard. That’s because this year, tax bills were higher. Most people paid more than last year or their refund is smaller. While there’s not much you can do about it now, there are steps you can take now to avoid a 2020 tax time surprise.
• With every receipt of cash you get, put a little money away to pay your taxes. A good rule of thumb: roughly 25 percent. If you can’t put that much away, put away something so you at least have a fund you can use to pay your tax bill.
• Create a budget and review it on a quarterly basis. It doesn’t have to be elaborate. It should include what you‘re making versus what you’re spending on a high level. Be forward thinking. Do a mid-year check to see where you’re at. Base your budget on the previous year plus a percentage increase. As long as you track where you’re at in any given point of time relative to the total, you can judge where your year is going to be in advance. It’s no longer good enough to hand a shoebox of receipts to your tax advisor in January or February. If you want to be a growing, thriving business that is greater than six figures in sales, you have to monitor your results along the way so you can have flexibility and make necessary changes along the way. If you want to get out of a rut and make your business work for you, you have to do things financially. It’s as simple as paying attention to detail. Just by paying attention to detail, you can see the potential to significantly increase your sales and profits.
• Get a good bookkeeper who knows how to classify your receipts and expenses properly. Trying to do it on your own will end up costing you money at tax time. Yes, you can do it yourself a little bit, but hiring an expert will help you focus on what you do best and generate more cash flow in your business.
• Talk to a CPA about tax planning and your business structure to see if it’s the best structure for your business. Tax laws and sales taxes are hot issues now! If you make more than $157,000, is it better for you to be an S Corp versus an LLC? If you are doing internet sales outside of Arizona, are you educated on other states’ sales taxes?
• Be aware of tax laws changes on what’s deductible. Talk to your tax advisor about changes to such items as meal expenses and reimbursing your employees. You might need to change how you record items in your accounting system to ensure you are tracking them properly.
• Remember: personal expenses are not deductible expenses. Your Men’s Health Magazine and your gym membership are not business expenses. Many small business owners treat their businesses like their personal piggy banks. Personal and business expenses must be separate! Be sure you have separate bank accounts and separate credit cards. And, be aware of spending patterns because it’s painful if you get audited! If the IRS rejects any of your business expenses, that means you have more profit and you will pay more taxes because you didn’t pay the right amount initially.
Marcy Maslov is an accounting professional for On the Money LLC, a team of self-proclaimed bean counters, number crunchers and calculation nerds who are forever dotting the i’s and crossing the t’s. On the Money’s mission is to help small-business owners take control of their finances by creating systems and tracking tools, then teaching them how to use those tools to make better-informed money decisions. Marcy has more than 25 years of accounting and finance experience with Pepsi, Motorola, and 20th Century Fox. She holds an MBA and a BS in Accountancy. She’s also a Certified Professional Co-Active Coach with more than 13 years serving the small business and entrepreneurial community. Marcy invented e-Factor!®, an educational board game of business ethics. She uses it to provide fun, interactive training to meet Sarbanes-Oxley and other mandated compliance training.