YAY YOUR BUSINESS IS MAKING MONEY!
Now get ready to pay taxes, including the 15% self-employment tax. *screeching halt*
No one likes taxes, but they are a reality and, if you run a small business, you do NOT have to pay taxes on the money you had to spend to run that business. So, don’t. Keep track of what you spent so you can write it off later. Here’s how.
- Make a tracking PLAN:
- Decide WHERE you will put all your expense receipts. Make a folder on your computer or google drive and a physical folder in your office/desk. Some apps let you take photos of your receipts and attach them to the records. Then, place those receipts in those places ASAP after getting them.
- AUTOMAGICAL PRO-TIP
Try connecting your business bank account* & business credit card to an online small business tool, like:- Freshbooks.com ($35/mo free 30 day trial, also invoices and connects to social media and acts as a CRM)
- Waveapps.com (free but a little buggy)
- Quickbooks.com ($48/mo free 2-week trial. This is the Cadillac, most small businesses making under $100k won’t need this)
- Execute or check in on that plan regularly
Make a time to go thru and organize your expenses, a lot of people do monthly or quarterly.
“Is this a tiny bit boring?”
Not if you’re a virgo. Just kidding. It’s definitely less boring than the 18-hour day you have to spend at the end of the year doing it all at once (trust me on this one).
“Why do this? Who cares?”
You do….at tax time. Ever hear the phrase, “you gotta spend money to make money”? Well, all that money you spent is money you don’t have to pay taxes on. Say you pay an overall average of 30% in taxes — for every 100 in receipts, that’s $30 back in your pocket — so there’s your motivation to track it ALL.
Where you track it is up to you, but keep records [reciepts, digital records]
Where you report it is on a Schedule C, where you list your expenses by type category as annual lump sums. Click to learn more about what you can track, report, and write off. Take note of the “other” category.
You can create a Schedule C for each business type you run – so say for example you’re a performer AND a technologist [ahem, me], you fill out a Schedule C for both. Why? Because you use different supplies and have different costs of doing business for both — and certain business types have additional items you can write off. For example entertainers can write off pantyhose and makeup, and technologists can write off subscriptions to software companies we suck up to and Wired.
*Perhaps you are still running your business income and expenses through your personal bank account? This is the time of year that sucks: whether you use a digital tool or just go thru every transaction by hand, you’ll need to separate out what you spent for the biz from for you. For the biz = write off possibility, so get sorting!