Are you having problems with your taxes? (Catholic Pope?) You are not alone. Many people experience this anxiety or fear when it comes to their taxes and the IRS has been coined by Psychology Today to describe the phenomenon: parsiophobia. This is not an unfounded fear. Many people spend hours wading through red tape related to taxation and other government hurdles.
But sometimes the expectations are worse than the reality. While many are concerned about going to jail, Credit Karma reports that only 0.9% of businesses are currently flagged for IRS audits (excluding S corporation returns). Audit concerns aside, let’s take a look at why business owners feel tax pressure, some tips to help you prepare and file your taxes, and find out how to avoid procrastination so your business doesn’t incur heavy tax penalties.
Tax season is filled with confusion and confusion over money and time. Nearly half (47%) of Americans are concerned when they receive a letter from the IRS, and nearly a third (29%) of Americans are concerned about an audit. But it doesn’t have to be that way! Here are three ways to stop worrying about taxes and get into zen land tax.
- Evaluate your money and your emotions.
Ask yourself this question: What part of tax season are you afraid of? Better yet, what steps can you take to control and reduce these issues? Here are some suggestions:
• Keep track of cash flow. Knowing what goes in and out each month is a great way to reduce your anxiety.
• Understand your overhead costs. As you review your books, keep track of what are considered general business expenses (labor, software subscriptions, inventory, and shipping) and personal expenses. By isolating these expenses, you can estimate the expenses that can be deducted as business expenses.
• If you are involved in e-commerce, keep track of sales tax due dates. The deposit frequency is determined by your condition and can be yearly, quarterly, monthly or even weekly. Don’t forget to set a sales tax filing reminder so you can avoid late interest and penalties.
• Do not ignore the self-employment tax if you are self-employed. I’ve found that allocating 30% of your income to taxes can give leaders peace of mind for year-end taxes, even if you don’t know the exact amount and can write off some of your expenses.
- Know your tax landscape.
Tax terminology can be confusing. Sometimes it feels weird or confusing on purpose, as if you’re fighting an uphill battle. But you really don’t need to be a chartered accountant to understand your taxes. Knowledge is power, and the time you spend researching the tax landscape is well worth it.
Know the difference between quarterly taxes and month-end taxes. Are you a sole proprietor? You will likely be liable for income taxes, self-employment taxes, withholding taxes, Social Security and Medicare taxes. You may be required to submit an annual report or pay a business license fee.
But don’t invent the bike. There are many resources to help you organize your money.
- Divide the notebook into small parts.
Many small business owners feel rushed when they pay taxes. Instead of reading your books every quarter or waiting for the federal tax break, set aside an hour or two each week to straighten your books. You want to make sure that all of your income and expenses match the amount in your bank account each month so you don’t have any nasty surprises. By giving yourself enough time, you can spot any missing forms and spot any tax errors before it’s too late.
The best advice is often the simplest. What’s the easiest way to beat a tax stagnation? I started early. The more control you have over your money throughout the year, the less anxiety and uncertainty you will feel in April. With these tools and tips in mind, you can really skip the palm sweats and wait for spring.
The information provided here does not constitute investment, tax or financial advice. You should consult a licensed professional for advice on your particular situation.