Every year at tax time, I realize I'm way behind. Does anyone have hacks or ideas to make things easier?

Question

Every year, I swear I'll keep better records, be more organized and it won't be so painful next time.   But then tax time rolls around again and I'm scrambling.  Any ideas on ways to do things better?

Answer 1

One thing I always advise is to try to set money aside regularly over the course of the year.  Set up another account so the money you're going to owe in taxes isn't sitting in your operating account.  It may not help with the paperwork around taxes, but at least you're not scrambling to make the payment.

As an added bonus, set aside more than you'll need for taxes.  That way, you'll not only have the tax payment, you'll be creating your own funding that you can use in a pinch or to seize an unexpected opportunity.

Comments

Putting money aside through a second account is great and becomes a bit of a 'prize' if your expected tax bill is lower than your actual tax bill.

That said, the above works better for low capital investment businesses like consulting and services and is harder when you sell products.

First and foremost, an accounting system is necessary. There are great free ones out there that will link with your bank accounts and credit cards. Invest a few hours and set this up.

If the year has elapsed and you have a large bill, the best way to legally reduce it is through a corporate 401(k). You can make contributions after the new year for the previous year and the caps are quite high. The downside of the above is you cannot reinvest this money in the business but, as I see it, it's either staying with you or going to Uncle Sam.