I’ve been dreading it for months… but it’s time to face facts: Tax Season is upon us.
Now, let’s not pretend that I have been on top of things these past few (or 6) months. I’ve already admitted to you guys that I, queen of credit-cards-are-your-best-friends-if-you-use-them-right, have been dropping balls all over the place. I got my husbands Worker’s Comp Insurance cut off because I forgot to pay the bill, we got fined by the CRA because I forgot to file sales tax, and yes, I paid interest on a credit card...twice. I am blaming this on pregnancy and baby brain, and not admitting any fault at all, thankyouverymuch.
Somehow, this yesar I managed to avoid acknowledging that tax season was not only a reality, but one that I would have to deal with, regardless of if I felt like it or not.
But I DO have to admit that I have no idea, whatsoever, where to even start with my taxes this year. And it is totally my fault.
I would rather single-handedly scrub my entire bathroom with a toothbrush, than begin, now, to try and organize my taxes for 2016.
There are a few things that I will absolutely be doing differently for the 2017 tax season.
I had no idea when I started blogging as a “home-based business” that I would make real money this fast, and no idea that said money would appear in two currencies and even less of an idea that I would ever be selling a product. Yikes. I didn’t even track expenses, because it was laughable to think that I would need to claim expenses.
Lesson to take away here?
1 – Keep solid business financial records. From day one.
Unless you PLAN to fail, and are taking steps to ENSURE you fail, Record. Everything. From the DAY you start your home-based business – be it blogging, crafting, day-home-ing, proofreading, or even dog walking –
(And not on scraps of paper by your computer. Turns out that’s a bad system.)
I am going into 2017 with a very specific accounting plan. (An educated by the school of “Whoa! what-a-colossally-stupid-thing-you’ve-done, Carly!” plan, if you will.)
For 2017 I will record every single penny that comes and goes related to this blog. I will record affiliate commissions and book sales and plugin purchases and stock photo purchases. I will record developer costs and ad income and I will know exactly what to put on “line 421” next year, when I am prompted to do so. (I made that line up. Don’t look for it.)
I’ve used a few different accounting programs (after the massive failure of my scraps-of-paper system) – and most of them have seemed either a little… lacking… or completely over my head.
I’m currently trying Xero. For a number of reasons:
- It lives in “the cloud” so I can access it on the go – from all my devices – (and I didn’t have to install anything on my computer).
- It integrates with Paypal (annnnnd that just saved me 746 hours of typing in over 300 Paypal transactions this month alone).
- It’s multi-currency on the premium plan, which I need, and which will – even at premium – still cost less than hiring an accountant to figure out all my USD transactions.
- It comes with accounts set up for small businesses and I didn’t have to try to guess at which accounts I should have.
- You can invoice and receive payments directly in the system. It integrates with stripe and – did I mention? – Paypal.
- It has a completely free 30 day trial period, so you’re not out anything to try it.
Even if you have serious doubt that it will matter for this particular tax year, record everything. (Try Xero for free … and see why I’m so impressed with the Paypal integration.) Do not be a Carly. I didn’t believe for a second that it would matter for the first year. Which caused another issue –
2 – Consider tax installments from the moment you start earning.
Or at least move 30% to a separate tax account, earmarked for tax payments.
I told myself, when I started earning, that I had a long way to go before I ended up actually needing to pay tax.
I wish I had set aside tax money from the start. Because you know what happens to money that sits in your account? It starts to feel like your money. And you get sort of attached to it.
We’ve always set aside tax money from each check my husband brings home, and tax time has never felt like anything more than giving away the money that was already earmarked for giving away. It is 100x easier to pay that tax bill if you don’t need to watch your bank balance drop.
(Plus, this will prevent you from accidentally spending the money and not having it to pay the bill with at tax time.)
And don’t worry if 30% sounds steep. It probably is. I have no idea how much tax you’ll pay, but 30% is a good shot in the dark. If you make LOTS of money you might have to pay more… but chances are pretty good you’ll get some back.
(Especially if you remember tip #3 ⇓ )
3 – Know what is deductible, and what is not. DO take advantage of deductions!
Home-based business gets special treatment in the realm of deductions. Not only are you saving on transportation costs (and rent of office space), but you get to use a portion of the everyday costs of living in your home as write-offs for your business – now that your home is your office. (Winning!)
I’ve read that the number one mistake people make with their home-based business tax deductions… is NOT claiming them!
Because my readers are mainly American – I love you guys – I am not going to attempt to explain what you can write off in your country and what you can’t, because giving you bad tax advice is the LAST thing I want to do… so I direct you to these (more knowledgeable on all things USA tax) places: