The New Year is upon us and in the U.S. that means prepping for our income tax appointments or filings. I’m here to help retailers prepare for filing taxes. However, “taxes” can mean many things to many retailers, depending on where you business is located.
So I’m here to share a variety of “tax” tips because you may pay sales taxes or other taxes as a small business owner! More on that in a minute.
This isn’t fun work – I know!
I can hear the “ugh,” “yuck,” “blah” comments right now. This isn’t a fun retail topic, like window displays or hosting fun events, BUT it is necessary. I hear some retail business owners say they push off bookkeeping and tax responsibilities throughout the year and then it overwhelms them in Q1. If this is you, I want to give you some helpful habits so you aren’t scrambling, or worse- delinquent!
Types of Taxes:
While doing research for this article, I was surprised at the variety of taxes retailers pay. Of course this depends on the state you live in or the city your business is in. Some of the taxes you might pay as a retail business owner include:
- Property taxes – if you own your property (good for you!) you’re most likely paying property taxes. Hopefully this is something that is set up and paid for automatically through your mortgage
- Personal property taxes – for example, in Maryland if a business owner has an LLC they are required to pay property taxes on anything they own.
- If you have employees, there’s Unemployment tax and Payroll tax
- Income taxes
- Self-employment taxes
- Privilege or Sales taxes
Disclaimer: every business, every city, region, each state is DIFFERENT. I won’t be able to cover WHICH taxes you are required to pay in this blog post. This is individual and you’ll have to research this for yourself. This article is more about setting up good practices and habits around taxes,
10 Tips to Help You Prepare for Tax Season:
#1: SET UP A SEPARATE BANK ACCOUNT FOR TAXES
Create an ADDITIONAL account specifically for taxes. Personally, I use a version of Profit First. I have a sales tax account AND an IRS tax account. This ensures that when it’s time for me to pay those taxes, the money is in each account. I don’t have to worry about where I’ll get the funds. This is optional of course but I find it very helpful! And if you haven’t separated your personal finances from your business finances you want to consider doing this as soon as possible.
#2: MAKE A DECISION ABOUT BOOKKEEPING
For the love of all things – stop putting this off. If you think you can handle bookkeeping, do it, or take an online lesson so you can learn how to do it. But If you hate the numbers, if you really dislike bookkeeping or just don’t understand it – HIRE someone! Get over your fear of being judged. Bookkeepers WANT to help you with your business and they can provide you with additional guidance regarding your business finances. More importantly, bookkeeping isn’t necessarily easy AND it is time consuming, so go ahead and get this off your plate. Not only so it’s done correctly but so it can save you time!
#3: PREPAY TAXES IF YOU CAN
Prepaying, if it’s an option, is a good practice and offers PEACE OF MIND – for instance, I prepay IRS taxes quarterly – the amount I pay is based on the amount my tax accountant (CPA) advises. This alleviates any kind of anxiety around Federal tax time. Once it’s time for my tax appointment, I don’t have to worry about how much I will have to pay after a full year of running a business… because I’ve prepaid throughout the year. Even if I do owe, it’s never an amount that would overwhelm me. Ask your CPA to set this up for you.
#4: FILE YOUR SALES TAXES (OR ANY TAXES) ON A SCHEDULE
This could be monthly, quarterly, bi-annually – not every region or state has sales tax but in Ohio we do. The rate is different in each county but the system as a whole is managed by the State. When we first started our business the State of Ohio had us filing and paying sales taxes biannually. After we reached a certain amount of sales, the State of Ohio sent us a notification to pay monthly and the process is very simple online. Regardless of the type of tax you may pay, I want you to create a system for yourself so you file this regularly instead of avoiding it!
#5: SCHEDULE REMINDERS ON YOUR PHONE OR IN A PLANNER
Every 15th of the month, I have a reminder set in an app on my phone to remind me to file and pay sales taxes online and to mail in my IRS tax payment quarterly. Another tip related to this is if you need accountability, find a biz bestie, someone that can keep you on track – hold each other accountable for completing this task every month.
#6: USE ONLINE BOOKKEEPING SOFTWARE
If you choose not to hire a bookkeeper, there are many online software programs for bookkeeping. Quickbooks is probably the most popular amongst shopkeepers but Wave and Xero area also options. What’s so great about these software programs is that they sync with bank accounts, Etsy accounts, credit card accounts, Paypal, and more so once you connect these accounts with the bookkeeping software you choose. These programs will import all of your transactions for you – you don’t have to manually add each transaction. You do have to look for duplicate entries, make sure there aren’t any discrepancies, and reconcile accounts each month but if it saves me time, I’m all in. If all of this sounds like a foreign language – you most likely want to hire a bookkeeper!
#7: SET UP A SYSTEM FOR RECEIPTS
This can be a paper file or you can use an app to scan and store them, just make sure you are SAVING them in some way. Click HERE for a helpful IRS article for small business owners and how long you should save business records.
#8: USE A MILEAGE APP
If you’re delivering goods and traveling for your business, you definitely want to track your mileage so you can write this off. Speaking of write-offs, make sure you check with your accountant on ALL THE THINGS you can write off. Taxes can be frustrating and sometimes having to pay them can be infuriating so make sure you are taking advantage of any and all write-offs but remember a professional should guide you on this.
#9: MAKE AN EARLY APPOINTMENT WITH YOUR TAX ACCOUNTANT
Schedule your appointments early! As soon as the new year arrives, try to make an appointment with your CPA (tax accountant). Yes, you might be able to file for an extension but I’m talking about GOOD practices today, and really, filing for an extension will only prolong the inevitable. Personally, I like to get my income taxes done, filed and out of the way as soon as possible!
#10: HIRE PROFESSIONALS!
As much as I like to learn things and DIY, I know my limitations and I know when I need to ask a professional for help. You should consider doing the same thing. Please make wise decisions about this aspect of your business! The professionals retail business owners can consider hiring are a bookkeeper (like I mentioned above), a CPA (Certified Public Accountant) for filing your income taxes and maybe even an Attorney (if and when needed).
If you struggle with prepping for tax season, choose 2-3 of the above good practices and start there. It can be hard to implement all of these small business tax tips at one time. I totally understand, but I recommend starting somewhere!
I’m sure there are so many other ways, practices, and tools you can use to help you streamline and be proactive about your taxes so I want to know….What are your best small business tax tips? Tell us about it in the comments!