Shiloh Johnson, MST, CPA, is the CEO and founder of ComplYant, a TaxTech platform making business tax management stress-free for founders.
Do you get tax anxiety? (Is the Pope Catholic?) You’re not alone. So many people suffer from immense worry or dread when it comes to their taxes and the IRS that Psychology Today created a word describing the phenomenon: forosophobia. And it’s not a baseless fear; many people spend hours wading through red tape regarding their taxes and other governmental hurdles.
But sometimes, the anticipation is worse than the actuality. While many worry about going to jail, Credit Karma reported that just 0.9% of corporations were actually flagged for an IRS audit (excluding returns from S-corporations). Audit angst aside, let’s take a look at why business owners experience tax stress, review some tips to help you prepare and file your taxes and learn how to avoid the pitfalls of procrastination so your business doesn’t fall prey to expensive tax penalties.
Tax season is rife with confusion, cash and time crunches. Nearly half of all Americans (47%) feel anxious when receiving any correspondence at all from the IRS, and nearly one-third of all Americans (29%) worry they will be audited. But it doesn’t have to be like this! Here are three ways to stop the tax anxiety and get to a place of “tax zen.”
1. Take stock of your finances—and emotions.
Ask yourself this: What parts of tax season are you afraid of? Better yet, what steps can you take to control and lessen those anxieties? Here are some suggestions:
• Track your cash flow. Knowing what you have coming in and going out every month is a good way to help reduce your anxiety.
• Understand your overhead costs. When reviewing your books, keep tabs on what is considered business overhead (labor, software subscriptions, inventory, shipping) and what is personal spending. By separating that spending, you can anticipate what costs you can write off as business expenses.
• Keep an eye on when your sales tax is due if you’re involved in e-commerce. Your filing frequency is set by your state and could be due annually, quarterly, monthly or even weekly. Make sure you set a reminder to file when your sales tax is due so you can avoid interest and penalties for late filing.
• Don’t ignore self-employment tax if you’re a sole proprietor. I have found that setting aside 30% of your income for taxes can help give leaders peace of mind for end-of-year taxes, even if you don’t know the exact amount and can write off some of your costs.
2. Know your tax landscape.
Tax verbiage can be confusing. Sometimes it seems intentionally tricky or misleading and as if you’re fighting an uphill battle. But truly, you don’t need to be a CPA to understand your taxes. Knowledge is power, and the time you take to educate yourself on your tax landscape will be infinitely beneficial.
Learn the difference between quarterly and end-of-month taxes. Are you a sole proprietor? You will likely be responsible for income tax, self-employment tax, estimated tax, and Social Security and Medicare taxes. You might also be required to file an Annual Report or pay a business license fee.
But don’t recreate the wheel. There are plenty of resources out there to help get your finances in order.
3. Break down your bookkeeping into smaller chunks.
Many small-business owners feel rushed around tax time. Instead of waiting to sit down to review your books each quarter or waiting until the federal tax holiday, take an hour or two each week to reconcile your books. You’ll want to ensure all of your income and expenses match the dough in your bank account each month so you’re not hit with unpleasant surprises. Giving yourself plenty of time also allows you to follow up on any missing forms and catch any tax errors before it’s too late.
The best advice is often the simplest. What’s the easiest way to conquer the tax-season creeps? Start early. The more you have a handle on your finances year-round, the less anxiety and unsureness you’ll feel when April rolls around. With these tools and tips in mind, you might actually skip the palm sweats and look forward to spring.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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