Many of our customers are both employed and self-employed, painting a tax picture that reveals itself slowly as incomes, deductions, and taxes paid are added and subtracted from a variety of the tax forms. If you just finished your 2018 taxes, this is a good time to review how well your business and employment worked together to pay your 2018 tax bill.
Personal: Review your W-4
On the personal side, review your W-4 form with the payroll or human resources manager at your place of employment. The W-4 is the form you fill out that tells your employer how much tax to withhold from your paycheck. Did you pay too much and receive a big refund or pay too little and owe a lot, perhaps even having to pay fines for underestimating? The taxes withheld from your paycheck reflect your filing status (single, married, head of household) and the dependents you claim. Check to make sure the information on your W-4 form is accurate.
Business: Set up a Paper and an Electronic Filing System
On the business side, make yourself a filing system so you can organize your business-related receipts and invoices in folders or envelopes if your receipts are paper and in computer files and folders if your receipts and invoices are electronic. Most likely you will need both paper and electronic files. Determine the categories your business expenses and income usually fall into and make folders and files that are named accordingly. Things like fuel, advertising, landscaping, construction materials, permit fees, banking fees, equipment repairs and maintenance, and new equipment purchases, contractor payments, interest on business loans, and home office expenses are common expenses in a fix-n-flip business. Check to see that your online folders are named the same as your paper files and then use that same name to enter the expenses in your Excel table or Quick books program. Remember, the IRS requires that you use these things for business if you deduct them.
Track and File Weekly or Monthly
File and enter your expenses weekly or monthly to avoid the pain of finding yourself in February of 2020 sorting stacks of receipts at the kitchen table for tax year 2019. You are bound to miss something and spend a lot of time searching for missing receipts. And, just running your unsorted papers in a shoebox over to your tax consultant means you are going to be paying them to sort out the papers, and they probably will not be able to do so without your help anyway.