Aka "Don't do what I did" (mostly)
With so many women starting their own home businesses these days, it's a good idea (and best, legally speaking) to include the business in our income taxes. It can seem daunting, overwhelming and rather confusing at first, but if you keep things organized and maintain monthly it will be a whole lot easier.
Yesterday I spent nearly the entire day working on taxes. This was after another full day or two of organizing, going over Paypal reports, receipts, categorizing and marking (followed by procrastinating for about a month), then more organizing, double-checking and adding. It would have been SO much easier had I just kept everything organized from the start of the year and tallied things up after each month. What did I do instead? I just tossed everything into a file box and waited until the end of the year to sort through everything. BAD idea! It was hard on me and hard on my kids -- me trying to focus, organize and think for long periods of time with antsy, cabin-fevered toddlers running around [literally] bouncing off the walls.
I'm sure many of you are more organized than I was with these things, but I hope this advice will be able to help someone. If not, at least it will help me from now on!
So, without further ado, here are my tips to lessen stress with business taxes...
1. Have a separate bank account and/or credit card for your business. Keep business transactions out of your personal accounts. It will make it so much easier when trying to keep track of everything... and that way you won't have 4 different accounts to look through (for the entire year) picking each business transaction out of 35 million personal transactions. Just saying.
2. Save every single receipt. Especially when you use cash and the transaction won't show up on any other account statement. But even if it will show up on a statement be sure to keep the receipt so you know if it was actually a business or personal transaction (or if you slipped in a candy bar when you were purchasing shipping supplies... and if you did you can recalculate the actual business expense, with tax, without the candy bar).
3. Keep track of the price of inventory and materials for products. You will need this for two reasons: one - inventory, two - "cost of goods sold". It's much better than sitting there wondering "how much did I pay for this again?"
4. Keep business materials and craft supplies separate from personal. If you take something for personal use, write it down along with how much it cost. You can probably let a little glue here and there slide, but if you bought some packages of beads for your shop and want to use one to make a necklace for yourself, write it down.
5. Take a look at the tax form 1040 Schedule C: Profit or Loss from a Business. What are they going to want to know? What categories do you need to put things in? Decide where to put things ahead of time so you don't end up spending 20 minutes each year trying to figure out where to put postage costs.
6. Set up a file box with a folder for each month of the year, or each category from the tax form (I use one for each month since I have the monthly summaries from Paypal to print out). Drop in your receipts as they come.
7. Complete a summary and totals every month. Go through all your receipts and the summaries for Paypal or whichever merchant account you may have. Categorize all your expenses (into those categories from the tax form) and sales, returns and interest/dividends. Total everything for each month. That way you will be able to just go through and add the totals for a category from each month and get the grand total for the year in just a few minutes.
8. Don't forget business use of your home. If you have a home office, work space, studio, or a corner of a room where you work on your business, measure the square footage. Using form 8829: Expenses for Business Use of Your Home you figure the percentage of the total area of the home and you can write off that percentage of your taxes, mortgage interest/rent, utilities, insurance, repairs, etc.
9. When you're getting down and dirty with numbers, have a supply of calculators. One for each of your children plus one for yourself. That way you won't have to ask your 2 year-old to give the calculator back every 2 minutes.
10. Go to the IRS website to find and file your taxes with a free e-file company. Most people can e-file and it saves a lot of time and effort. You do have to have all the information, forms and totals, but the company does all the calculations and determining if you qualify for something. Plus if you're going to get a refund it will arrive a lot sooner! I will get my [fat] refund deposited into my savings account in one to two weeks. This is the one time of year I'm happy I'm poor with two kids! (When I'm rich I will be more than happy to pay higher taxes... but until then, yay for tax season!)
And I should also mention, after all this you need to congratulate yourself on being a savvy business woman and give yourself a big reward... say, a week long vacation? Tee hee, I wish!