Shiloh Johnson, MST, CPA, is the CEO and founder of CompliYanta TaxTech platform that makes corporate tax management stress-free for founders.
Do you get tax anxiety? (Is the Pope Catholic?) You’re not alone. So many people suffer from tremendous worry or anxiety when it comes to their taxes and the IRS that Psychology Today created a word that describes the phenomenon: forosophobia. And it is not an unfounded fear; many people spend hours wading through red tape regarding their taxes and other government hurdles.
But sometimes the expectation is worse than the reality. While many worry about going to jail, Credit Karma reported that only 0.9% of companies were actually flagged for an IRS audit (excluding returns from S companies). Audit anxiety aside, let’s take a look at why business owners experience tax stress, take a look at some tips to help you prepare and file your taxes, and learn how to avoid the pitfalls of procrastination so your business doesn’t fall prey to expensive tax penalties.
The tax season is full of confusion, lack of money and time constraints. almost half of all Americans (47%) feel anxious about receiving correspondence from the IRS, and nearly a third of all Americans (29%) worry that they will be monitored. But it doesn’t have to be! Here are three ways to stop the tax anxiety and get to a place of tax zen.
1. Take stock of your finances – and emotions.
Ask Yourself This: Which Parts of Tax Season Are You Afraid Of? Better yet, what steps can you take to control and reduce those fears? Here are some suggestions:
• Track your cash flow. Knowing what you come in and out each month is a good way to reduce your anxiety.
• Understand your overhead costs. When reviewing your books, keep an eye on what counts as business overhead (labour, software subscriptions, inventory, shipping) and what personal expenses are. By separating those expenses, you can anticipate which costs you may write off as business expenses.
• Keep an eye on when your sales tax is due if you’re in the business of e-commerce. Your filing frequency is determined by your state and can be yearly, quarterly, monthly, or even weekly. Be sure to set a reminder to file when your sales tax is due so you can avoid interest and penalties for late filing.
• Do not ignore the self-employment tax if you have a sole proprietorship. I’ve found that setting aside 30% of your income for taxes can help give leaders peace of mind for year-end taxes, even if you don’t know the exact amount and can write off some of your expenses.
2. Know your tax landscape.
Tax vocabulary can be confusing. Sometimes it seems intentionally awkward or misleading and like you’re fighting an uphill battle. But really, you don’t have to be a CPA to understand your taxes. Knowledge is power, and the time you take to educate yourself about your tax landscape will be infinitely beneficial.
Learn the difference between quarterly and month-end tax. Are you a sole proprietor? You are likely responsible for income tax, self-employment tax, estimated tax, and Social Security and Medicare taxes. You may also be required to file an annual report or pay a business license fee.
But do not remake the wheel. There are plenty of tools to get your finances in order.
3. Break your accounting into smaller pieces.
Many small business owners feel rushed around tax time. Instead of waiting to sit down each quarter to review your books or wait for the federal tax break, take an hour or two each week to align your books. You want to make sure that all of your income and expenses match the money in your bank account each month so that you don’t get any nasty surprises. By giving yourself enough time, you can follow up on any missing forms and spot any tax errors before it’s too late.
The best advice is often the simplest. What’s the easiest way to get over the creeps of tax season? Start early. The more you have a handle on your finances throughout the year, the less fear and uncertainty you will feel when April rolls around. With these tools and tips in mind, you could skip the palm sweat and look forward to spring.
The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice on your specific situation.