There’s a reason why most people file their taxes at the last minute; the process can feel daunting, and the prospect of combing through your financial information seems like it might take an entire weekend.
Luckily, you can typically file your taxes in a fraction of the time if you gather all of your necessary information before you actually sit down to file. To lend future-you a hand so that you’re not desperately trying to find important tax information at the last minute, you can start getting your affairs in order now so that there are no surprises when you actually sit down to file.
The most effective way to make sure you don’t overpay in taxes is to keep your business expense information organized. Each time you deduct a business expense, you reduce your business profit, which in turn reduces your tax bill.
That said, tracking your business expenses throughout the year is easier said than done, and you may find yourself needing to hunt down information about your business expenses after the tax year is over.
If you know that you’re missing information about your 2020 business expenses, you’ll need to sort through your financial information to find the missing info. We recommend going back through your bank statements or credit card statements, and making sure each business-related expense is recorded in whatever system you’re using to track your business expenses (a spreadsheet, an accounting software, Found, etc.). Don’t forget recurring expenses like your phone bill or software subscriptions!
You’ll need to repeat the above process for your business income information as well. If you get paid via just one payment method (such as Stripe, a gig platform, or one specific bank account), then gathering your business income information will be quick. However, if you accept multiple forms of payment via multiple platforms or bank accounts, you’ll need to go through all your income streams and make sure your total 2020 income is up to date.
Remember: If you earned $600 or more from any particular client or company, they’ll likely be sending you a 1099-MISC to report your 2020 income. The income that you report on your tax return should match the income that’s reported on your 1099-MISC, so be sure to reach out to your clients if your 1099-MISC information is incorrect so that they can send you an updated one.
Most of us have been through the experience of sitting down to file taxes or to fill out a financial application, only to realize we’re missing an important document or reference number. In order to submit your tax return, you’ll need your Social Security number (and the SSNs of anyone else on your tax return, like dependents or spouses).
If you or your family members don’t have SSNs, you’ll need to list your ITINs instead. ITINS (Individual Taxpayer Identification Numbers) are reference numbers that the IRS can issue to you if you’re unable to get a Social Security number. Here’s where you can apply for an ITIN if you need one.
You have the option of filing taxes using an online tax filing software, an independent tax preparer, or free tax filing services provided by your community. If you're not sure which method is best for you, or if you’re not happy with the filing method that you’ve used in past tax years, check out our guide here on how to evaluate the different filing methods.
Regardless of which tax filing method you use, we recommend picking a specific day when you plan to file your taxes. Marking your calendar with your own personal “Pre-Tax Prep Day” can help ensure that if you run into any blockers or issues while filing, you’ll still have time to resolve them before the May 17th deadline.
Note: If you choose an appointment-based filing method, book a time and day as soon as possible so you can make sure you’re not scrambling for an appointment in May!
As you prepare your tax return, take note of whether your bookkeeping system (or lack thereof) made the process easier or harder. While some people can do a fantastic job of diligently tracking their expenses with a simple spreadsheet, it can be difficult for most to get in the habit of recording expenses immediately as they’re paid. Plans to manually record expenses at the end of each day can quickly turn into plans to record them weekly, then monthly—and before you know it, you’re sitting down to file taxes with two months of excellent records, four months of so-so records, and 6 months of no records at all.
Finding ways to automatically track your business expenses can drastically reduce the amount of time you’ll spend on bookkeeping and tax filing. Here are some ways you can do so:
Track your expenses with an app on your phone so that you can record expenses on-the-go, instead of waiting to get back to a desktop computer
Use a bookkeeping software that can be linked to your bank and credit card accounts, so that all of your expenses are pulled into one place where they can be categorized
Open a business bank account to be used exclusively for business expenses and income. That way, you’ll know that any purchase made from that bank account can be deducted on your taxes, and any deposits made into that bank account can be counted as business income. Found accounts can be opened for free in just a few minutes, and you can manage your account directly from the Found app at any time.
If you’re self-employed, you’re likely already familiar with the concept of quarterly taxes. While setting aside a flat 25-30% of your business income for taxes is a good rule of thumb, you still risk underpaying (and incurring penalties), or overpaying (and losing access to valuable funds until you can get your tax refund).
It’s best to have a clear estimate of how much you’ll owe in taxes so that your four quarterly tax payments throughout the year can be as accurate as possible. You can use the IRS’s Form 1040-ES worksheet to estimate how much you’ll owe for the year, which estimates your tax liability based on your filing status and on how much you expect to earn and deduct throughout the year. It’s best to fill out this worksheet a few times throughout the year so that you can use the most up-to-date information on your income and expenses, since your tax liability will likely rise or fall depending on how close your original income estimates were.
Note: If you use Found as your business bank account, you won’t need to use the Form 1040-ES to estimate your tax liability! The Found app will use the information in your Tax Profile, as well as your bank account activity, to calculate your tax bill in real time.