There are no guarantees in life except for death and taxes. Mehhhhh. It’s kind of the truth, even though we don’t want to admit it. Since tax season is in full swing, we wanted to share some tips + updates to help make the process a bit easier.
Taxes + COVID
Currently, the Treasury Department and the Internal Revenue Service are providing special tax filing + payment relief to individuals and businesses in response to the COVID-19 crisis. The filing deadline for tax returns has been extended from April 15th to July 15th, 2020. The IRS is urging taxpayers who are owed a refund to file as quickly as possible. For those who can’t file by the July 15, 2020 deadline, the IRS said that individual taxpayers are eligible to request an extension to file their return. You can read more about the filing and payment relief here.
In order to maintain consistency with the federal income tax extension, NJ Governor Murphy, Senate President, and Assembly Speaker announced they will extend the due date to file and make payments for NJ taxes until July 15th. You get more updates and information here.
See More: A Financial Guide to Getting Through a Pandemic
Tips for Making Filing Taxes Easier
Track Your Mileage
If you drive for work, it’s recommended to track your miles. The app Trip Log is great for this — just turn it on before you start driving and then off once you arrive. It logs all your trips with date/time/location and once you put it in you never have to think about it again until it’s time to do you taxes.
For the 2019 tax year, the rates are:
- 58 cents per mile for business miles driven {up from 54.5 cents in 2018}
- 20 cents per mile driven for medical or moving purposes {up from 18 cents in 2018}
- 14 cents per mile driven in service to a charitable organization {currently fixed by Congress}
Save Receipts
We are all guilty of throwing out receipts, since it’s annoying to have them lying around. There are a ton of apps available that allow you to scan and keep receipts in one spot. If you ever get audited, the IRS will want to see the actual receipts and not just the bank statements, so it’s better to be prepared and ready, just in case. Check out this list for the best Android and iOS apps for managing receipts.
Keep Separate Bank Accounts for Business and Personal
It will make your life and taxes much easier when you start breaking out what expenses are personal versus business. Nowadays, many people work a 9-5 job while managing a side hustle. Be it freelancing under an LLC or teaching fitness classes, your side game might need taxes filed differently. Plus, you can apply for a credit + debit card for each business which is incredibly helpful when organizing your expenses. NOTE: You must be a registered business with the state government in order to get a business bank account.
See More: The Top Five Financial Things You Must Do For Your Small Business
Pay Estimated Taxes
If you are self-employed and are making a profit, you need to pay the government throughout the year, not just on April 15th. If you are working 9-5 under ’employee status’, you pay the government with each paycheck. As a small business owner, you should pay estimated taxes quarterly {four times a year}. This makes the end of year and tax time way less stressful. Your accountant can help set this up easily.
Learn About Deductions
Each business spends money differently. When you are self-employed or have your own small business, you can take several deductions. Computers, printers, cell phones, website hosting, domain names, home office, WiFi, and more can all be deductions as long as they are business-related. Talk to your CPA about everything you are spending to ensure that you are capturing all of your deductions. You don’t want any money to slip through the cracks.
Get an Invoicing System
Quickbooks and Freshbooks both come highly recommended. Freshbooks is great for sending invoices to clients {it’s super user-friendly}, but the monthly fee is considerably higher than Quickbooks, if you have a lot of clients. However, if you use Quickbooks, you’re accountant can also monitor it and review as needed.
Bookkeeping is Separate from Accounting.
Your accountant should be able to explain this to you, but unfortunately, a lot of accountants don’t take the time to break things down for you. Bookkeeping is responsible for the recording of financial transactions. Accounting is responsible for interpreting, classifying, analyzing, reporting, and summarizing financial data. Make sure to find out the breakdown for your business or if you’re a sole proprietor.
Work with a Professional
Hiring someone for bookkeeping and accounting can be life-changing. Some CPAs cover accounting as well as tax + business financial planning. When you meet with a CPA, you’ll sit down to review your income, expenses, and deductions. From bank accounts to expenses to bookkeeping to tips and how to make the next fiscal year easier, a professional will be able to support you. Once you find the right person to have in your corner, you can utilize their knowledge outside of tax season if you get a new job, need to make a large purchase, or are considering applying for a loan.
What are your tips for the 2020 tax season? Share below!
