People often think they need to start in January to get ready for tax season and to prepare for their tax returns. You can start at the beginning of the year and have everything ready by December 31. Follow these 7 guidelines to avoid making mistakes and to make your life easier for filing.
Any kind of business – including digital businesses – should keep personal and business finances separated. You will never be tempted to mix funds.
Use one credit card dedicated to your business. This way, you easily track business expenses for tax season.
Most of your business expenses are tax deductible. If you are a freelancer and use your personal computer 50 percent for your business, you can depreciate 50 percent of the computer cost. Find out all expenses that are deductible.
Keep ALL receipts that are tax deductible. The IRS will require these if you are audited. Keep a folder on your computer for Receipts. It is not necessary to sort them. (but for your own organization, it’s helpful.) If you received a paper receipt, take a photo or scan it and add it to your Receipts folder.
MISTAKE #4: Not filing your tax return on time
Some online professionals believe that not filing a tax return is acceptable. Untrue.
A simple way to avoid delaying your tax return is to keep your finances up to date. For small businesses, you may need to only reconcile once or twice monthly; for larger business, reconcile daily.
Hire a bookkeeper to track your expenses; he or she will know what is deductible. If you aren’t trained in bookkeeping or accounting, you can hire an on-site or virtual bookkeeper on a contract basis. Consider hiring for short-terms tasks, too. Using a cloud-based software such as QuickBooks makes is a breeze.
Update your books on a daily basis, or as often as possible. Track deadlines and all terms of your invoices and bills so that you don’t or forget a payment. Also, delaying a payment has financial consequences — most likely a late fee. Remain up to date to keep costs down and prepare you for tax time.
First, collect your money as soon as possible to keep your business running smoothly. Second, invoicing immediately keeps items fresh in your mind. Third, if you forget, your clients will unlikely remind you, thus resulting in lost income.
Software such as PayPal, FreshBooks or Due.com are free. All you have to do is fill in the details and send the invoice.