
Well, March is coming in like a lion – before leaving like a lamb – and that can only mean one thing. Tax season is upon us.
Are you ready to file your 2022 federal and state taxes?
If not, you’re hardly alone. Many small business owners put this task off.
But, if you start early, you can avoid the last-minute stress of trying to track down a client’s missing 1099-NEC or adding up receipts the night before the tax deadline.
Besides, if you use 17hats to manage your small business, the platform provides several time-saving features to get you ready for tax time.
Read on for some handy tips. By the time you reach out to your accountant or tax advisor, you’ll be one step ahead of the game.
General tips for small business
It’s hard to generalize. Many of you reading this are businesses of one, while some of you might have one or more employees. Almost all of you will need to file applicable federal taxes for your small business, but some of you have state filing requirements as well. And that’s before we allow for the many different fields out there. Life coaches, after-school tutors, and wedding venue operators will all have different expenses and sources of income throughout the year.
Still, there are some similarities that we can speak to:
- What you were paid. Let’s assume for the moment that you’re a freelancer, who served several different clients in 2022. If you haven’t already, it’s time to gather up those documents you received over the past month or so showing what you were paid last year. (Forms such as a 1099-NEC may have arrived by mail or electronically.) Remember, the IRS received a copy of those forms too, so be sure to acknowledge all the income you saw in 2022. Some clients may not send you a 1099 – say, because they paid you less than $600 last year – but you should still reflect what they paid you as part of your total income.
- What you paid out. Work with your tax advisor to identify possible business deductions. Get a head start now by pulling together all your receipts. (Be sure to see below for a convenient place to store photos of those receipts, in 17hats.) You may be able to deduct all or part of equipment costs, office supplies, professional affiliation dues, and credit card merchant transaction fees. Also, do you work at home? You may be able to deduct some of the costs associated with your home office. Finally: Did you make estimated quarterly state or federal tax payments along the way in 2022? If so, it’s time to add up what you paid each quarter and share that with your tax advisor. You want to get credit for what you paid in already!
17hats makes tax season easier
OK, 17hats members – here’s where your foresight pays off. Organizing your business with 17hats makes preparing for tax time that much easier.
Let’s start with reports. With a few keystrokes, 17hats can generate your Profit/Loss Report, so you know what you logged as income for 2022. Would your tax professional like to know how much you collected in sales tax last year? You can tell her that in an instant, by producing a Sales Tax Report in 17hats.
Meanwhile, you can also easily review everything that you categorized as an “expense” last year. You can even upload pictures of receipts and other related documents using the Bookkeeping feature within 17hats.
Be sure that you are including everything that might legitimately be considered an expense. Work with your tax advisor or accountant to determine what’s eligible, in whole or in part.
An example? If you accept credit card payments, remember that the charges from your payment processor – often 2.9% + 30¢ per transaction – are tax-deductible. You can enter those as “Merchant Fees” in 17hats Bookkeeping. If you didn’t already do that in 2022, then consider it for 2023.
Deadlines are coming up
Turn your attention to your small business taxes well before your filing deadline, to give yourself time to answer questions from your tax advisor.
The federal tax filing deadline for most Americans is Tuesday, April 18, 2023. But some states may have earlier deadlines, depending on your business entity. So it never hurts to get an early start!
SEP IRA – made for small business
One other thought …
Retirement may seem like a long time away. But saving now could help you build a nest egg for your later years.
A SEP IRA (Simplified Employee Pension Individual Retirement Account) lets solopreneurs save for retirement on a tax-deferred basis. At big companies, employees can turn to a 401(k) for tax-deferred retirement savings, but you may not have access to a 401(k) as a small business person. The SEP IRA is a retirement vehicle that lets self-employed people save for their golden years too.
Why are we talking about an IRA in a blog post about taxes?
Because your eligible 2022 SEP contribution is tax deductible for your business. You can make a retroactive 2022 contribution up until this year’s filing deadline of April 18, 2023.
Learn broad brushstrokes about the SEP IRA here. You can also find specifics from the IRS here. If you plan to start a SEP IRA or make a contribution, be sure to consult with your tax advisor and accountant.
This content is for informational consideration only, and should not be taken as financial, legal, or tax advice. Consult with your tax professional before making any tax decisions.