The Small Business Guide To Taxes
Hiring an accountant is about as fun as booking a dentist appointment. But, just like keeping your teeth sparkly, keeping your books and taxes squeaky clean is imperative. Especially if you are busy growing a side hustle or small business.
Enter Kelly CPA. We’ve worked with owner Marie Kelly at our educational conferences and love her candor and ability to connect with creative thinkers and spirits.
With Tax Day just two months away, we thought it was a good time to sit down with our go-to Certified Public Accountant girlboss (in her oh-so-gorgeous Dallas office) and see what we need to know to file on time and correctly this April and beyond.
It’s two months from Tax Day, what should people be doing right now to get filed on time and properly?
Gather your tax documents for personal reasons (W-2s, 1099s from banks, etc.). When it comes to business, you should make sure your books are updated through the end of 2017. Categorize all income and expenses from 2017 into the right place. Make sure you took an inventory count at the end of last year so you can report that on your tax return. Confirm that the bank and credit card balances on your books match the balances on the statements received from the bank at the end of last December.
Ok, after Tax Day, what is a good rule of thumb for staying on top of your taxes and accounting moving forward? Is there a monthly checklist or something you recommend?
We recommend that you make quarterly estimated tax payments to the IRS in April, June, September and January if you own a business so you aren’t surprised at how much you owe in April. This also forces you to put money aside for taxes. A great idea for small business owners would be to reconcile their various bank and credit card accounts each month in Quickbooks (or whatever software they use for bookkeeping) to the task doesn’t become overwhelming at the end of the year (you’ll also probably remember your expenses better this way). We strongly encourage clients to have a separate bank account set up for their business.
When is it time for a small business or freelancer to join an accounting software like Quickbooks? Which do you like or recommend and why?
We recommend starting with Quickbooks from the very inception of the business! It’s so awesome to be able to see all of your activity in once place and easier to budget and project your income and expenses in future years. This helps growth! We highly recommend Quickbooks because it’s so easy — for business owners and accountants. One Quickbooks downside is that the software isn’t really built for keeping track of inventory. We recommend clients use a point of sales system that integrates with Quickbooks (i.e. Shopify) or document inventory via an excel spreadsheet during the early stages of business to keep products and items straight.
What are the biggest mistakes you see people make?
Many people are so afraid of accounting and taxes that they choose to ignore the issue during the year and wait until taxes are due to get organized. This ends up being so expensive both in fees paid to their accountants and advisors and in the amount of tax that’s due! It’s pretty surprising to learn in April that you could owe $30,000 in tax! That’s a pretty easy number to get to when you own your own business. Another mistake we see is the lack of budgeting for advisors. CPAs can be extremely helpful to the business and can really help save money and help the business grow. We see many people who just don’t have an accounting or legal budget. If things aren’t set up properly from the beginning, it can be very expensive to correct mistakes. Many entrepreneurs also don’t realize that the penalty for not paying payroll and sales tax is a criminal act.
What are your recommendations for avoiding or cleaning up these problems?
Hiring an advisor from the beginning is a great way to avoid issues. Our firm, for example, teaches entrepreneurs how to set up and keep track of their own books so that we can focus on the value-added services we can provide, like budgeting and creating tax projections. It’s also never too late to call and ask for help! The minute an entrepreneur realizes they have a problem, they should start contacting potential advisors.
Breakdown some solid write off rules for us for full time small biz owners and part-time/freelance peeps?
The business use of a vehicle is deductible. The easiest way to calculate the deductible amount is to deduct the business miles driven during a particular year. Working from home is also a useful deduction. There are some rules related to this but the most important one is that you must dedicate that space in your home 100-percent to work. It can’t be used for personal purposes (so you can’t use your kitchen table as an office!). Your business-related meals and travel are also deductible.
When it is time to call in the professional CPA?
This is a difficult question to answer. Our thoughts are that all small businesses should be working with a CPA from the start of the business. This keeps things streamlined, organized and promotes growth. If your business is your side hustle that just brings in some extra spending money each year and you don’t see it moving past that, we still recommend a CPA to help make sure that you maximize your tax savings but it might not be cost effective.
What is the best way to find a good CPA fit for a creative person?
It’s really important to find someone who listens to you and wants to understand your business. We have a few clients who work as “influencers” and use their family CPAs for years and their tax returns just read “blogging income” and “blogging expenses.” The CPA had no idea what they did for a living and really didn’t care. We love learning about what our clients do day-to-day and knowing their business really helps us to build a great and trusting relationship. We have some clients that we speak with multiple times a week! We end up forming personal relationships with them and I think the right brain person really responds to that.
What is the perk or upside to investing in a CPA?
We often end up saving the client more money than we charge them. There are so many strategies and so many deductions that most people aren’t aware of. Investing in a CPA can sound like a big undertaking and a big blow to your wallet but the savings and ease of doing business as an organized business owner often outweigh the fees.
Tuesday February 20th Kelly CPA is hosting a free info session called “The Digital Entrepreneur” for creative business operators such as bloggers, influencers, web designers and makers with online shops. Marie Kelly and her team will discuss taxes, expense tracking, compensation and more. The event is from 5:45 to 8 p.m. at WeWork Thanksgiving Tower located at 1601 Elm St. in Dallas. For more information about Kelly CPA visit kellycpatexas.com.