5 Tax Tips for Self-Employed Business Owners

This year I completed my twelfth tax season. Since day 1, I have especially enjoyed working with self-employed small businesses owners. Each person, business, and process is so unique! Yet one of the biggest challenges that almost all self-employed small business owners face is figuring out a system for keeping up with financial and tax records. Here is a list of my top 5 tax tips to help self-employed small business owners stay on track for tax season all year long.

Tax Tip #1: Get familiar with the Schedule C

The Schedule C is the income tax form where all your self-employed business income and expenses will be reported. It is so much easier to track income and expenses when you are aware of at least the general categories the IRS is looking for. You can also have “Other expenses” categories that are unique to your business. But the Schedule C is a good place to start, and it can be found here. Also get familiar with Publication 334, the Tax Guide for Small Business, which can be found here.

Tax Tip #2: Find a System

Some of my clients use dedicated accounting software like QuickBooks. Others use Excel spreadsheets. The important thing is to have a record-keeping system that works for you. You need financial records that are accurate and that you understand. Unfortunately, I have seen a lot of clients get their records jumbled up because they didn’t have the time to use the software well.

In addition to using a system to track your finances, you need to keep paper or digital documents to support your income, expenses, purchases, and sales. You will need to have receipts for purchases that are assets instead of expenses because those will be listed separately on your tax return.

Tax Tip #3: Use Separate Business Bank Account

Separating business and personal bank accounts makes it much easier to determine business income and expenses. It’s also a sign that your business is legitimate. You can take money out of your business for personal use, but you have to keep track of it (e.g. owner’s draw) so that you don’t accidentally deduct personal expenses on your tax return.

Tax Tip #4: Report to Yourself Monthly

Use your record-keeping system to keep track of your income and expenses on a regular basis. Then use that information to review your Profit & Loss and Balance Sheet monthly. One of the biggest mistakes I see clients make at tax time is having no idea how much their business made or lost the previous year. Keeping your records current can also be huge if you need to get a loan or even contract work with other companies.

Tax Tip #5: Partner with a Tax/Accounting Pro

You might lean on this person weekly, monthly, or annually, but it is essential to have a tax professional who is familiar with you and your business when things come up. Whether you have a quick question or a letter from the IRS, you need to know without hesitation where to go with it. A great tax professional will have a whole list of specific tax tips for you as well!

Different tax preparers/accountants have different areas of expertise, so find one who takes time to know you and understand your business. In addition to Googling tax preparers/accountants in your area, you can ask for recommendations from business contacts you trust.

Bottom Line

Business finances are a constant part of running your own business. It’s not something to deal with only at year-end or right before you file your tax return. Following these tax tips will help you better manage your business year-round.

Not sure if being a small business owner is right for you? Check out my post about why I love being a mom and running my own business!