My 5 Steps to Understanding Taxes this Year
What the hell?! Taxes! What am I even doing?! Where do I even begin?
If you couldn’t tell by the design of this week’s post…taxes are a very stressful topic to me.
April is “tax season” and as a small business owner this freaked me the f*** out.
I’ll be honest, I procrastinated YEARS before actually starting a business because the legal and financial aspects intimidated me. It’s not my strength. I can do the marketing and design; we can talk about social media or debate email marketing service platforms all day. Canva? Done. I’ll teach you everything I know.
Legal jargon and financials are not where I want to spend my energy or my time.
Last year, I went all in to start my business and told myself “whatever, it’s laters problem”. Fast forward to Q4 of 2021, I hated myself. Later is now.
Here’s the 5 (probably not productive) steps that I took to understanding my taxes as a small business owner this year.
LEARN ABOUT TAXES (EVEN THOUGH YOU DON’T WANT TO):
Near the end of the summer last year, my friend recommended I check out a couple of webinars that are offered on SCORE. The webinars were $50 each, but she highly recommended them and said that the trainer was fantastic and helped her out a lot. So, in the fall, I signed up for them: Tax Essentials for New & Existing Businesses &Tax Savings Strategies for Small Businesses
She was right. These webinars were super helpful and the trainer was highly knowledgeable. He interacted with each of us online and was able to answer all of our questions. He even offered up to anyone who attended the webinar, they could reach out to him to schedule a solo Zoom meeting and he’d volunteer his time to help them figure shit out. This was a game changer.
One of the things I learned was that as a single-member LLC, I’m seen as a pass/flow through entity. What does that mean? Basically any money the business makes (minus the business expenses/deductions) is seen as my personal income.
PAY QUARTERLY ESTIMATED TAXES (YUP, IT SUCKS!):
What?! I know. I learned about this in the tax webinar, but I had no idea how to even figure out what I would owe. I also assumed as long as I paid the bulk of it before January 15th that I’d be absolved from any “penalty”. These were all assumptions that I made knowing absolutely nothing and based on absolutely nothing lol. I don’t recommend doing what I did. I paid a lump sum in January but I was still penalized. Don’t panic though if you find yourself in the same situation…it was only a $25 penalty. Unfortunately, I underestimated and once I had my taxes done (shout out to my awesome aunt for helping me because I was legit freaking out every day from January through March not knowing what to even do), I still owed more money. Dammit.
UNDERSTAND A PROFIT & LOSS STATEMENT (WHAT AM I? H&R BLOCK?)
The tax mentor that I met through SCORE, gave me a fantastic bookkeeping excel sheet to document all transactions. Everything aligned with the Schedule C Form 1040 that I had to fill out for my taxes. It was extremely helpful.
Side note: I’ve now signed up for QuickBooks because I just can’t even…lol, after one year of doing it all manually; spending the money is worth it. I need a software that does a lot of the work for me so I can focus on the stuff I care about doing.
PHONE A FRIEND AND CRY (IT’S NOT OVER YET.)
I had dinner with a friend and heard her horror story about her small business taxes, which did not put my mind at ease with my mess. So, what did I do? More panic.
I’m extremely fortunate that my previous manager, Marci Nakano, helped me. I reached out to Marci who probably pitied me and my complete lack of understanding with any of this. We met over Google Meet and she explained EVERYTHING that I needed to do. Not just for the IRS, but also for the state and the city.
GET YOUR SH*T IN ORDER (AND WRITE IT DOWN!)
Now that I went through the growing pains of my first year (I’m sure I’ll f*** up many more times), I made sure to write down the due dates for all of my business registrations, estimated tax payments, filing with the Secretary of State, excise tax with the Department of Revenue, B&O with the City of Seattle, etc.
Can I confidently say that I understand taxes and by Q4 2022 I won’t be freaking out? No. Absolutely not. I think I’ll always doubt myself and think I’m f***ing something up or forgetting something. However, I do feel a lot more confident than I did last year and that’s the only thing I can hope for…growth!
Good luck with your taxes this year, everyone!
Make it yours,
-Brittany Danyelle
