I ended up taking an accidental 3-week hiatus on sending out newsletters this week because I was busy getting married, and oh my gosh, is that time consuming no matter how “low key” you think you made it!
Lucky thing #1: I have an amazing accountant who squeezed me in last minute.
Lucky thing #2: I had been keeping track of all my income and expenses in my financial portal all year so I just clicked export, sorted the categories for my accountant in excel, and sent it off to him.
Lucky thing #3: My accountant also gives services at my workplace by releasing seafarers tax deduction. As If you’re an employee and work at sea, you may be able to reduce your tax bill by getting the Seafarers’ Earnings Deduction.
I know the feeling of scrambling to get your tax information together, wading through piles of receipts and bank and credit card statements. When your accountant sends you that list of docs or you start going through Turbo Tax, your stomach turns a little and you wonder how you get this done every year.
What if next year, you had Lucky Thing #2 on your side? What if you could just push a button and taxes would be 99% done? Last week’s Bondfire Radio show was all about how to make sure next year’s tax season is a breeze.
As anyone who has self-employment income (looking at all my freelancers and side hustlers out there!), here are 4 things you can do now to make sure next year is way easier than this year:
1. Have a separate account for all your business income/expenses: even if you do nothing else until next year, this will make your life 1,000% easier for taxes. Open a new checking account (doesn’t have to be a business account if you’re not ready for that yet!), and deposit all your business income into it. Use the attached debit card to pay for all your business expenses. Transfer money from this “business” account to your personal account each month to pay for your personal expenses.
2. Start tracking now: you don’t need a bookkeeper and it doesn’t need to be fancy. You just need to be consistent. My monthly clients have access to a financial portal where we can track their business expenses together all year long. If you’re up for DIY’ing your expenses, use mint.com, but only link your aforementioned “business” account. This way, only business income and expenses pull through. Once every two weeks or every month, go in and categorize your expenses. This is where the magic happens. If you do this on the regular throughout the year, then you can literally just hit export next year and send the spreadsheet to your accountant. Boom.
3. Have a way to keep track of all your cash spending: these are the transactions that get lost in the shuffle, but you can’t avoid them. Every time you have to pay a toll or go into a cash only spot, it doesn’t get captured. What can you do? Make sure you grab a receipt, then download the Expensify app and snap a pic of the receipt. Expensify can create and export reports for you based on the receipts you snapped in the app and you can just send the number to your accountant. Hooray!
4. Pay your taxes along the way: to pay or not to pay estimated taxes? If it’s your first year, how do you even know what to estimate? Here’s the deal – the penalties for not paying estimated taxes are relatively small if your income isn’t in the 6 figures. The reality is though, unless you’re super diligent about putting away money for taxes every month, doing quarterly payments can keep you out of a lot of trouble once next year’s March/April deadlines roll around. Once tax season is over, talk to an accountant, ask them to help you calculate quarterly tax payments, and start to pay them every 3 months. You can even pay them online at EFTPS.gov.
So there you have it. Push through your taxes this year, set up these 4 things ASAP, and next year, you can have your taxes done by February with the push of a button and spend time on more important things 🙂