What can I do to get ahead of my taxes?
Q: Dear Ruchi, as Q3 comes to a close, reality is setting in! I can’t believe tax season is approaching again. This year, I want to do things differently and be more prepared. I always wait until the last minute but this year I really want to set myself up for success. What should I start doing now to get ahead of the game?
A: Time flies from quarter to quarter when you’re a business owner! I know taxes might not be the most exciting topic, but a little preparation now can make a big difference in the long run. As we step into a new season, it’s time to do a thorough check-in on all areas of life. But not to stress, when it comes to your finances, we’re here to help you out. Let’s get to it and talk about some steps you can start taking today.
1. Do a General Check-In on Your Business
Take a step back and look at how your business is doing financially. Have you been making progress toward your goals? Are there any areas that need a bit of attention? This little reflection can give you a clearer picture of where you stand.
2. Tidy Up Your Financial Records
Just like tidying up your home, tidying up your financial records is a must. You'll thank yourself later. Go through your expenses, income, and transactions. When your records are organized and up to date, it's like having a clear roadmap for tax season – no confusion, no stress.
3. Run a Profit and Loss Report
A Profit and Loss (P&L) report is like a summary of your income and expenses – all neatly laid out. When you look at this report, you'll get a clear idea of where you're making money and where you might have opportunities to cut back.
4. Save Now, Thank Yourself Later
Saving now means no scrambling for funds when tax season knocks on your door. So, let's set aside a little money now to cover those taxes later. I typically advise clients to create a process to save throughout the year. Take a look at your earnings and estimate how much you might owe–you can speak to your accountant to estimate your tax rate.
5. Consider Quarterly Payments
Paying taxes once a year can be a bit overwhelming, and may result in penalties and interest for underpayment . But guess what? You can break it down into smaller chunks by making quarterly estimated tax payments. It's like turning a big task into smaller, manageable steps. No more last-minute panic – just steady progress. If you don’t do this already, add this to your list for next quarter.
6. S Corp Owners, This One's for You
If you're an S Corporation owner, there's a little IRS rule you want to keep in mind. They want you to pay yourself a "reasonable" salary. Work with your CPA or a payroll provider to do this before the end of the year and make sure your salary meets the IRS requirements to avoid any future hiccups.
7. Bring in the Pros
If you haven’t already established a relationship with a trusted CPA (Certified Public Accountant) start reaching out to some. Sit down with them and have a chat about your income, potential deductions, and how much you might owe. It's like having a personal tax tutor!
Here’s to your prosperity!
Ruchi
P.S. For more tax tips check out some of our previous Ask Ruchi’s!