tax season

Steps to take now for next year’s tax season

Next year’s tax season begins today

Imagine starting the business of your dreams and loving every day of your life. That is until tax season rolls around, and your stress levels go through the roof. If you want to enjoy working for yourself all year, you should prepare for taxes now. Then, you can make sure you file your taxes on time and don’t break any laws.

Read on to learn a few tax planning tips.

Start Gathering Receipts

One of the first things you should do is keep a copy of your receipts for business expenses. Create a folder, either physically or on your computer, and keep the receipts together.

As tax season rolls around, you’ll have all of your receipts in one place. Then, you can add up all of your expenses to help determine how much you can deduct on your tax return.

You can also consult with an accountant to make sure an expense qualifies for a deduction. For example, while you can deduct business meals, you can only deduct 50% of the cost.

Track Your Revenue

You’ll also want to track your revenue any time a client pays you or you make a sale. You can track these transactions with accounting software or a spreadsheet, so do what works for you.

When you go to file your taxes, you’ll need to track your business revenue and expenses. Having a log of all of your payments can help you prepare for next year’s tax season.

You won’t have to spend hours going through all of your business accounts to find transactions. If you don’t want to log every transaction as it occurs, go through your accounts once a week or day.

Then, you won’t have to log as many transactions at once.

Request an EIN

If you haven’t already, you should request an employer identification number (EIN). Freelancers and business owners with no employees can use their social security number (SSN).

However, if you plan on hiring people or bringing on a business partner, you need an EIN. That will be the number you use to file your business tax return next year.

It can help provide some separation between you and your business. Then, you can look at other business structures to switch to as your business grows.

Choose a Business Structure

When you first start your business, you may choose to operate as a sole proprietor or a partnership. However, it can be smart to choose a different business structure as your business grows.

Some structures offer more legal protections, and the structure can also affect your business taxes. For example, a C corporation faces taxes as a business, but you’ll also have to pay taxes as an individual.

On the other hand, structures like a limited liability company (LLC) use pass-through taxation. That means you pay taxes on your part of the business using the same forms as your individual tax return.

Open a Business Bank Account

One of the best tips to prepare for tax season is to open and use a business bank account. Use the account to handle all incoming and outgoing payments for your business.

If you use the same account as your personal expenses, it can be hard to track everything. When you need to give your bank statements to an accountant, they may not know what is for business or not.

Some banks let you open a business account for free or very low cost. That way, you can separate all of your transactions to make tracking everything easier.

Talk About Tax Planning

If you have any business partners, be sure to talk to them about the 2023 tax season. You should all be on the same page regarding what business expenses you have and how you’ll prepare for taxes.

This is particularly useful if your business has pass-through taxation. All of the owners should know what part of the business they own so that they can file their taxes accordingly.

If you have a romantic partner, especially if they’re a spouse, talk to them as well. Your business taxes may affect your joint tax return, so your spouse should know what to expect.

Set Up an EFTPS Account

You may want to set up an account with the Electronic Federal Tax Payment System (EFTPS). The system lets you pay any taxes you owe the IRS online, so you don’t have to worry about mailing a check.

After you enroll, you’ll receive a PIN in the mail that you have to use when logging into the system. Then, you’ll be able to pay your quarterly taxes and other taxes you may owe.

The system makes it easy to connect a bank account and set up one-time or recurring payments. You should keep up with your estimated tax payments if you’re a freelancer, and having an EFTPS account makes that convenient.

Save Money for Taxes

Not only do you need a way to pay your taxes, but you also need enough money. If you’ve been in business for a while, you may already know how much you need to save each month.

New business owners should aim to save 25 to 30% of each invoice or sale. This can help cover the cost of federal and state income tax as well as self-employment tax.

Consider opening a separate account where you can store money for taxes. Then, when each quarterly tax due date rolls around, you can pay your taxes on time to avoid penalties.

Even if you don’t have a separate account, you should keep plenty of money in the bank to cover your tax payments. That can help reduce your bill when you file your taxes next year.

Look for an Accountant

You may be able to handle your finances and taxes alone. However, if your business is complex, it helps to look for an account or a CPA firm to help you manage everything.

Ideally, you’d hire someone who understands the tax laws in your state. But even just a general tax firm can help you prepare for tax season so that you don’t risk making mistakes.

Hiring an accountant now can also ensure you have someone to help with your taxes. If you wait until the last few months, you may not be able to book anyone to file your taxes for you.

Maximize Your Deductions

As you prepare to pay your taxes, think of ways you can maximize your deductions. Small business owners can deduct certain expenses, such as office equipment or other supplies.

The specific things you can deduct may vary based on your industry. Either way, deductions can lower your taxable income, which may help you save on taxes next year.

Regardless of your business or industry, you can maximize a few deductions. Consider contributing as much as you can to an individual retirement account (IRA) to reduce your tax burden even more.

Plan for Business Purchases

You should also think about any business purchases you want to make this year. Specifically, look at larger business expenses, such as an office space or a new business vehicle.

Save up for those purchases now, and aim to buy what you need by the end of 2022. Then, you’ll be able to deduct those qualifying purchases during the 2023 tax season.

Many business owners will make larger purchases in November or December. At that point, you’ll have a good idea of how much profit your business will make, so you can find things to buy to reduce your tax bill.

Organize Tax Forms

When preparing for tax season, be sure to organize any tax forms that you need. For example, if you have employees, you’ll need to provide a W-2 to each of them by the end of January 2023.

If you pay any freelancers more than $600 this year, you have to send them a 1099. Consider other tax forms you need to file your business taxes and take a look at them.

Even if you hire an accountant, it helps to know what forms you need. Then, you can figure out what details you need to provide to file your taxes accurately.

Review Federal and State Laws

Each year, you should review federal and state tax laws and thresholds. Some things change each year due to inflation, such as the tax brackets or maximum IRA contributions.

You should take a look at the rules for this year to make sure you’re taking advantage of deductions or credits. Knowing the rules can also help you avoid problems if the IRS audits you.

Consider if you need to pay state income taxes, payroll taxes, or other taxes. Think about when you need to file your taxes and if you can get an extension next year. Then, you can make sure you follow the tax laws that apply to you.

Prepare for Tax Season the Right Way

Tax season is a stressful time for many people, but it doesn’t have to be that way. Before you let taxes take over your life, start preparing for them early.

Then, you can get everything in order and make sure you don’t break any laws. And you won’t have to spend time on tax planning right before the filing deadline.

Do you want some help with your taxes next year? Learn more about our tax services.