Tips For Successful Tax Planning
As a small business owner, I have managed up to four LLCs in my lifetime. Some people have asked me “how do you do it?” The answer has been pretty simple and clear to me but confusing and overwhelming to other entrepreneurs – it has to do with juggling or as I better explain ‘multitasking and organization as key to my success’. But equally as critical has been how I manage the day-to-day operations and the books.
From a business perspective, I’ve learned to keep good files. To separate my lines of businesses into P&Ls. Something I learned at a young age when I started my career in digital media publishing. Back then when I reported to the president of a big publishing firm, I recall a great meeting where we sat down and he showed me how to manage my first P&L. I never forgot how to keep track of revenue and expenses since then. And so even to-date, I do that with my LLCs.
I have learned over the years to obtain separate credit cards for each line of business and while that may weigh down my wallet/purse, it allows me to know what to charge to what company. Additionally, I pay my bills using online banking and rarely pay by check or cash. That allows me at year end to print the year end summaries and total each category as business expenses –from travel, business entertainment, office supplies, food and beverage, hotel, airfare, office rent, parking and transportation fees, you name it! These are my two primary forms of payments – either credit cards or online banking. I try not to use cash and if I am required to do so, I keep a separate envelope for those receipts and it is easy to tally those related expenses and to submit at year-end.
About the credit cards, I choose to obtain cards with Banks that I work with, however, you can choose any credit card you prefer. What’s important to me about the cards is that they offer quarterly or annual reporting. I look for a credit card company that offers quarterly or annual summary statements which can be downloaded online and sorted in many different views as .pdf or .xcel files. I can search by specific vendors or merchants and by category, that way, the work is done for you.
Typically, you find these types of services by obtaining a black or silver premium credit card offered by Visa, Amex and like companies. Yes, you will be paying higher annual premiums and interest rates/fees for these cards but if you pay your bills monthly on-time, there are no incremental fees and the reporting I find is worth the expense to keep your businesses in line.
I often fly Delta Airlines as example traveling back/forth to the Midwest, so I prefer to use a Delta SkyMiles cards offered by Amex for personal or business travel. I hold other cards too. At times, I’ve chosen the $195/annual Amex card for my personal or smaller P&Ls and other cards at $495/annual fee for the larger P&Ls. Of course, with any card there are additional reward perks that offer free flights, upgrades, reward points and such, but it really has been the annual reporting that has been the key reason for my successful business management.
When I need to procure office supplies, something that is often shared across numerous P&Ls, I put this expense on the primary business credit card and at year end take a percentage off and apply towards the others. That keeps my business expenses simple so that a 70% expense might go towards one line of business, 20% towards another and 10% towards another. It’s not that complicated to recall what you do and to keep notes and track of those sorts of items.
At year end, I submit my red-lined or highlighted reports with notes on them and the online banking printed summaries, and copies of any other relevant receipts to my CPA. Then, we walk thru my expenses together before submitting my taxes. We do the same for all revenue streams (sales, interest, dividends, etc.) and any employee payroll expenses (1099s).
Typically starting in mid-December each year, I gather the W-2s for each freelancer or subcontractor hired throughout the year and total the revenue they earned from the invoices. I also organize that thru online banking or PayPal. If it exceeds $600, their info gets submitted to my CPA in early January for 1099 processing. If it is under this amount, don’t overlook it. Save the amount as a business tax expense. Some years, I’ve had over 18 subcontractors and not everyone received a 1099. These business expenses add up. Sometimes your business partners might be incorporated, and those expenses also are tax write-offs vs 1099s. So pay attention to whom you do business with when you first contract with them and complete the necessary tax papers early on – that way at year end you won’t forget to obtain the appropriate Tax ID info required for processing.
I remember when I met Daymond John from Shark Tank and he reminded me as a new entrepreneur to keep things lean and small. He said, “don’t get greedy, in time your business will grow. Outsource and hire people who are hungry and want to work with you – they will be the most genuine, loyal employees” and he was right. I have also hired people as subcontractors to keep my total expenses down while I grow my businesses. That has all been smart tax planning too and I’ve learned a lot since then.
So be a smart, savvy business shark and plan your days accordingly by organizing all those lovely expenses and keeping track the easy way. You don’t have to pile up all the receipts. No, I don’t use QuickBooks or similar apps but that can help you to stay organized too. Save the larger important cash receipts in organized files as back up or if ever needed for reference and use your annual summary statements as way to categorize your year-end expenses which can be printed anytime throughout the year. Then, sit down for your one-on-one with your CPA and that person will have more respect for you when you come prepared to the meeting with intention and concise information to process your taxes in a more timely manner.
Happy tax season — wishing you much success!
Have you read?
# Revealed: Top Rated Visitor Attractions In Every Country In The World.
# The World’s Safest Cities Ranking, 2018.
# The World’s Most Powerful Militaries In 2018.
# The World’s Most (And Least) Expensive Cities For Taxis, 2018.