The tax forms and bank statements are rolling in, and it can be hard to know if you’re doing it right. Do you choose to file as an LLC or another incorporation? How do you make sure you’re including all of your possible expenses to get the biggest possible tax refund? In this blog post, we’ve joined forces with Lance to go over the basics of tax filing for business owners and a few simple ways that you can save over $5,000 this tax season.
Step #1: Review your income
First and foremost, it’s crucial to get a true understanding of your *entire* income. What does this mean, though? Knowing what you’re making and from which sources is the first step to effectively filing your taxes. Some folks squirrel away their money in different places and then forget about what they’ve made, leading to confusion at least once a year. Make sure you have a clear sense of what you’re making (especially if you’re holding down more than one job simultaneously) and where your money should be budgeted for any necessary business expenses.
If, say, you’re making a total of $50,000 per year before taxes or any sort of spending, know that this is your net income and take stock of which jobs contributed to it. Are you missing any jobs or payments? Now, have you received receipts of those payments or any 1099 forms for that income? Make sure you stash all the physical or electronic documents in one place for up to seven years in case you get audited by the IRS. And then also list out all your payments (i.e., income) in a spreadsheet or word document – this will be super helpful in the next steps. If you already have everything captured in a Quickbooks or other program, just give it a quick review to make sure all your payments are listed there. Hopefully, you’ve gotten all your 1099s in by mid-March. If not, start making some phone calls to your past year’s clients or their accounting teams.
Step #2: Organize all of your expenses
Start your expense collection with big ticket items – they’re easier to remember and will get the process rolling for you. Again, if you use Quickbooks or other software, you may have some of your expenses tracked. It’s still worth going through your bank statements and car’s mileage, though, to make sure everything is included to make sure you maximize your annual refund amount.
Make sure to pull anything related to any and all of the jobs you worked on, like your commuting costs (i.e., gas mileage, parking fees), home office – part of your rent or mortgage, healthcare expenses, equipment and supplies, and education or conferences. Now, take a minute and add in any meals that you ate on the job or while meeting with potential clients (those are tax-deductible as they lead to new business!) and subscriptions or memberships related to your work. It’s typical for someone with that $50,000 per year income to miss over $5,000 worth of tax deductions – so take your time with this review. This is also where you may know your own job-related expenses better than anyone else out there – so make sure you catch them all!
Step #3: How are you going to file?
Finally, once you’ve reviewed all your expenses, it’s time to figure out how to file. Are you incorporated as a business entity – an LLC or other incorporation? If so, you’ll file separately for your business and your personal income. While it’s definitely a little more work, filing as an LLC could save you 10% or more on your annual taxes. If you’re filing only as a sole proprietor, you’ll take all the expenses you just identified and can also deduct any state sales tax along with any child care costs, mortgage payments, and student loan payments. You should be well on your way to getting a healthy return for the previous year.
First, if that felt like a lot to do and you want an easier path to file your taxes this year, consider downloading a couple of tools to help you. Many of you already use Quickbooks. This is a great catch-all and can be useful if you’re at your laptop. Another one if you’re on the go is Lance. We like this app because it captures everything but also calculates your taxes in real-time and lets you automatically save just enough for taxes while considering your usual expenses. If you have any questions about their product or want help preparing your 2018 taxes, we suggest scheduling a complimentary 30-minute consultation. Their team of friendly and knowledgeable CPAs is now available to all Workiz customers. Not only will they help make filing easy, but also help you save over $5,000 (on average) in tax deductions and refunds.