Tax season is obviously the “topic du jour nowadays. Meaning everyone is stressed, focused, anticipating what this will mean for their finances. I am writing this to help make life easier for you this tax season.
I find that tax time is stressful like no other for everyone, especially entrepreneurs. Y’all are usually scrambling last minute to get things done, dodging your accountant, or losing sleep over what you think your tax bill is. Here are a few tips to prepare and not make your CPA/Accountant want to curl into the fetal position every time they see your name come up.
Finalize your 2021 books ASAP. If you have not finalized your 2021 books yet, then that needs to be an immediate priority for you. Without accurate numbers for what your business made and spent last year, you absolutely cannot make the strategic decisions you need to right now in order to minimize your tax bill. If you are an entrepreneur earning at least $400,000/year or you simply find yourself procrastinating on bookkeeping, I absolutely recommend you hire a bookkeeper ASAP. Save your sanity, your bank account, and your accountant’s hairline.
Review your final Profit & Loss statement for any errors. If you have a bookkeeper, they should take some time to get used to your business rhythm, systems, and idiosyncrasies. Despite that, they do not know every single one-off you are doing in your business, but you should. Therefore, make sure that you are reviewing your P&L statement in detail before handing it to your accountant. This will allow you to make sure everything is appropriately categorized and accounted for when you file your income/expense information. If they are not accurate, then be sure to fix these ASAP.
Make a list of everyone you paid at least $600 in 2021 and Request a W-9 from them. 1099’s were due a few weeks ago, but better late than never! You should give your accountant or bookkeeper the W-9 so they can issue them a 1099.
Share your final 2021 Profit & Loss Statement with your financial team ASAP. This should include your tax professional and financial advisor. I recommend sharing it with both for a few reasons— mainly each of them has their lane and will be able to give you a different, but valuable, perspective on the next steps forward. This will also allow your financial advisor to provide you with more accurate retirement account contribution recommendations.
Ensure you have a sense of what your potential retirement plan contributions are. Make sure you have the cash put aside to make those. Depending on the type of entity you have or the account you want to open, these can be due either March 15 or April 18, 2022.
A few other things:
If you are on top of your game but are facing a nasty tax bill I recommend talking to your CPA about strategies to offset that income.
If she/he is not helpful, then please seek a second opinion or talk to a financial planner BEFORE you pay that big ol’ tax bill. Each financial professional has their lane in your financial life, and some may not be familiar with strategies in the other person’s lane. I’ll totally do a podcast episode or blog post on who/why you should have a financial dream team in your corner, but for now, let’s just make sure you have the support you need.
If you’re already sure that you’ve done everything you can/want to reduce your tax bill, then take a deep breath. Remember, if you weren’t making good money you wouldn’t have that tax bill in the first place.
If you want to, check out my latest podcast episode where I discuss this in detail.