What You Should Know About Filing Business Taxes

In this episode, Bekkah gets really excited to tell you all about getting ready to file your taxes. The best news? You only pay taxes when you make money! So, you’re never just paying them for nothing. Stick around for some tips to help you prepare!

Liability disclaimer: all our tips are from personal experience and are not considered legal or approved tax advice.
Welcome to Business Talk Sister Gawk! I’m Bekkah! And I’m Ruthie!

Bekkah: And today we are going to get you awake and alive because we are going to be talking about business taxes!

Ruthie: Ooo! Look at that spicy content. Let’s go!

Bekkah: In one of our most recent episodes we were recording. All of a sudden we just turned into like these weird jazz chill voices. We’re going to put you to sleep. We thought, well, we’re going to try to make up for that in this episode but the reality is that we’re talking about taxes. So here we go! Okay.

What forms should I have as a small business to do my taxes?

Ruthie: It depends on what your business model is and if you are a sole proprietorship or not. Bekkah is going to tell us about that.

Bekkah: The very first thing that I hear a lot from people is, “Oh I don’t want to start a business because I don’t know how to do taxes!” The good news is you don’t have to pay any taxes if you don’t make any money.

Ruthie: Wow!

Bekkah: So it’s really not scary because you’re only putting aside a portion of what you made to pay for the income that you’ve generated. It’s not like you’re going to have to pay anything when you didn’t make any money. You’ll always have the money to pay your taxes if you make sure to save it. What does that look like? If you are a sole proprietor, you’re just working and people are paying you for doing something. You haven’t set up a business whatever maybe you’re just a subcontractor for somebody. If you make more than $600 in one year from one person that is paying you you need to report that on your income taxes. Surprise!

If you’re making more than six hundred dollars, you should make sure that you are giving that person, especially if their business, you should be reporting it if they’re just a person like an individual say you’re doing a bunch of yard work or whatever.

What is a W-9 Form?

If you’re doing it for a business you should make sure to give them something called a W-9. A w-9 is this lovely form you can search it on the internet, we will actually link to it in the blog post. It’s on the federal IRS website and has information basically about your name, your address, and it’ll ask you either for your social security number or your EIN.

What is an EIN Number?

Your EIN is a number that you get if you file a legal business name. That will basically be within your business structure so and if you’re not a sole proprietor you would have an EIN number when you register your business or your company with the government. We should talk a little bit about the difference between the federal registration with the government for your business and then there’s also the state. That’s your name and stuff you register with the state but then you also get a federal number through that process. Let me tell you if you ever have questions just call the IRS! Actually! No, seriously. You can call! Or the secretary of state and say, “Hey, I’m filing this what does that look like?” And they’ll try to point you to different places on the website. There are tons of information there already.

Let’s talk a little bit more about let’s say you make over $600. What does that look like? You’ve maybe submitted your w-9 to the business that you’ve been working for as a subcontractor or as in providing an overall service or a product. How do you report that at the end of the year? You use a form that they give you called a 1099. They’re going to start doing their taxes and they say, “Here you go. Here’s a form that you use to report your income.” If they don’t give you that form you should still report it anyway. You just won’t have the numbers for where this income came from. Keeping track of your income is something you can do with accounting software.

Ruthie: Dun dun deeeh!

Bekkah: I don’t even need a little soundtrack things because Ruthie just comes up with them on the spot.

Ruthie: I come with them built in. It’s my speciality.

Bekkah: Yeah, you know how some radio shows they always have all these little sound effects like Boing!

Ruthie: Buttons that they push. I do that in regular life. I just make my own sound effects on accident. They just come out. They’re involuntary.

When Should I Be Paying In for My Business Taxes?

Bekkah: Involuntary free sound effects. Okay, where were we? When you report stuff using your accounting system, let’s go back a little bit to talk about whether you should be filing your taxes quarterly or annually. Big question. Technically, you should be filing them quarterly, but if you’re not making more than I think the threshold which you’ll have to look up it’s been somewhere between like $15 to $20,000. (NOTE: Bekkah wanted to clarify that you should be reporting your estimated taxes quarterly as you are reviewing your income in order to properly file your taxes to make sure you are paying in the right amounts. You don’t want to pay any penalty fees! Otherwise you will have a huge tax bill at the end of the year.)

Ruthie: I think it’s important to note at this point that neither of us are experts on this. We just have varying levels of experience Bekkah has more experience with business taxes than I do. I have more experience with like people’s for personal finance on a day-to-day basis. Bekkah has more experience with personal finances as well as business finances but you really should do a lot of research on your own and not just take everything that we say for granted. Which you should do that anyway, but just take everything we say with a grain of salt even though we have done a lot of research and we have a decent amount of experience with it.

Bekkah: #Don’tSueUs. We’re not certified public accountants. We just know stuff that we Google on the internet. No, actually, and we’ve had lots of conversations or done it for personal business use or whatever. Okay, anyway. The threshold okay I said 10 to 15 it probably is 150. I actually don’t know, so you should probably look that up, but you can file annually if it’s a sole proprietor because you’re doing it on your regular income tax. Because it’s straight through. The money’s going straight through to you not as a business pass-through. It’s not going to your business and then to your personal bank account, but regardless if it’s a business or not that is a legitimate filed structure you should have a separate bank account for your business so that you can track your costs of goods sold better. Because when you track your cost of goods and your mileage that you have for going to different places for your business or whatever those are called tax write-offs.

Ruthie: Ta-dah! I was going to say Den-Den again and then I thought I should switch it up.

Bekkah: Oh okay. Your job is to think about your next sound effect to make it unique before the next one.

Ruthie: All right.

Are There Business Expenses I Can Write Off On My Taxes?

Bekkah: Okay so tax write-offs those are super important to think about because when you run a business there’s lots of things you can write off for different reasons. If you purchase equipment that’s a tax write-off you can report and say, “Yep I actually took money from the money that I made and I used it to buy new things.” In the end when you look at your financial statements which in the future we’ll be talking about how to read financial statements and all that kind of fun stuff, that is your net. At the top is your gross income if you’re reading a financial statement and then below that is all the things that it cost me to run my business and then below that after all of the expenses and everything you will see the net income.

What did you actually make after you paid for your gas, after you had to buy equipment, all that kind of stuff? When you do a whole lot of driving and all that kind of stuff those things can be tax write-offs but you need to track them. When you track them you can either use a spreadsheet. You can use a notebook in your car. Or you can check out I really like the app for quickbooks self-employed. It actually has a little tracking of your location to report whether that was a trip you made for work. That actually syncs really nicely with turbotax and all that. I am personally not a fan of paying money for things, so I just do it on my own on a spreadsheet.

Ruthie: Also if you are looking at the past and you’re like, “Man, I really should have been keeping track of this. If you are as immersed in Google as I, unfortunately, am you can actually look at your trips and stuff on Google maps and it can show you that data. I think it goes back I don’t even know how long maybe indefinitely. That’s a lie you would not have it indefinitely but it goes back a decent amount of time and you can actually look at the different trips and it’ll show you on this day you went from this place to this place and then from this address to this address. Then you can calculate the mileage that way if you have to go back, but that’s a lot of work.

Bekkah: That’s also if you have your location tracking on at all times.

Ruthie: Which I do because I actually think it’s really fun.

Bekkah: Which I would not recommend!

Ruthie: I think it’s really cool, so keep that in mind.

Bekkah: Personal preference. What are you giving up? What are you giving up in terms of privacy? If you keep it in a notebook in your car nobody knows where you’ve been.

Ruthie: Yeah, hopefully, Google is not tracking that.

How Long Does It Take to File Your Business Taxes?

Bekkah: Because that would be weird if they did. The next question we have is how long does it take to do my taxes for a small business? Are you asking me that question?

Ruthie: Yeah. How long does it take to file your business taxes?

Bekkah: Okay. It really depends on your business structure. There are so many different business structures. If you are doing it under your pass-through sole proprietor or partnership which is pretty similar to sole proprietor except you’re doing it with somebody else and you’re just passing that money’s right through to you guys.

There are a lot of things about business structure we can talk about here, but if it’s like a s-corp or corporation you have shares in the company and you’re reporting those a little bit differently. But if you use a tax software or if you’re working with an accountant, they’re going to walk you through those categories. How long does it take? It really is dependent on if all of your stuff is together.

Are you organized? Because if you have all of your receipts, which, by the way, I love receipts by Wave. It’s an app on your phone, you take a picture, it logs it in your accounting system, you can do your reconciliation later. Then you don’t have to save all the paper copies. If you like saving paper copies and you really like having extra security you have all those in a file and you add those up and say, “Yep this is how much I spent on the business this year.” I would organize them by year so if we talk about fiscal year it’s a big word, but different companies have different filing fiscal years. Some companies like big corporate companies it’s weird, but they have their filing in August. Whereas, everyone else files at the beginning of the year for the previous year. Those taxes like for personal taxes are due by like April 15th.

If you’re doing it with your personal texts at the same time, you can do it on the regular cycle which is January 1st to December 31st. In terms of how long I would say if you really didn’t do a whole lot of business that year and there were single invoices for a few projects it’s probably going to take you between two to four hours if you do it

yourself. Or, if you’re working with the accountant, you bring it all in just give it to them and then they do it for you.

Are All Tax Write-Offs Good For Your Business?

But if you have a lot of individual sales for a lot of different small products, you’re going to have to track all of that so make sure you have a really great process for doing that. If you’re keeping on top of your accounting for the whole

year it really shouldn’t take you that much longer because you’ll be able to pull all that data pretty quickly. It’s good to know what’s available with that. Ruthie made a good point earlier about something from a previous episode that

we had done.

Ruthie: I think it was either a billboard episode or the storage unit episode with Tim VanSoest. He talked about how when you keep really good books and you are consistent with your taxes and really good at reporting things on that your business actually has a better resale value. So keep that in mind too that it is worth it to take the extra time to really be thorough about the record-keeping that you are doing for your business.

Bekkah: Just so we’re clear on this, when Tim talked about that he was talking about people that find ways to cheat the system. It’s not necessarily cheating but like writing off more things in their taxes so it looks like they made less money overall. Sometimes you double up and say, “I went to Walmart and bought this but for my business but I also bought groceries at the same time tax write-off for that trip, because I bought this.” But when you double those things up you put a whole bunch more miles on you’re saying, “I spent all this for business.”

Which sometimes is legitimate sometimes it’s a gray area but within that again we’re not CPAs, don’t sue us but within that thinking about how that could make you look like your bottom line is not what it is. Is that really truthful? Is that really as valuable in the end if you’re going to try to sell your company? Keep that in mind. What is your policy and how are you reporting your taxes honestly?

How To Pay Taxes on Products vs. Services

Ruthie: What is the difference between reporting taxes for services versus reporting taxes for a product that you’ve been selling on like a major commerce website or something?

Bekkah: Okay, that’s two questions so we’re going to back up. There’s a big difference between a product that you sell yourself and a product that you sell on a major e-commerce website. Those are two different things, but a service is something you are providing with yourself. Like manual labor maybe it’s your expertise in your consulting. Maybe it is doing stuff like teaching a skill, helping someone figure out their Facebook page. That’s a service it becomes a product as soon as you hand over something tangible.

If you’re a consultant and you have digital files that you’re emailing, and again I’ve looked into this quite a bit because of all the things that I’ve done with my stuff. That’s not considered a physical product but if you give someone a flash drive suddenly it’s a physical product and you have to charge sales tax. When it’s a physical product there is a whole little website within the Secretary of State that you report sales and use tax. Now the use tax part is a new category for me that I was like, “Hmm! I don’t know anything about this!” So I started looking into it.

What Is Use Tax?

Use tax is when you buy something and they didn’t charge you sales tax for your business. You buy it and for some reason, they just didn’t charge your sale tax. You have to report that and then pay the tax to the government. So when you sell something, depending on the specific tax codes in your area and again this is very, very specific to where you live. By your state, by your county, by your city, because even in my town for example because they wanted to pay for a new hockey arena, they implemented a 1% sales tax increase.

That means that on top of everything if I were to sell physical products from my business I would need to also charge a 1% sales tax on top of everything else to the consumer. Now you report sales and use tax quarterly. Usually, they’ll send you an email but I would just put it on your calendar to make sure that you’re going in and doing that. Look at your gross, how much you sold, and then how much sales tax you charge or you should have been charging. Then you pay in right there. You can pay on their website.

What Is the Difference Between Sales Tax and Income Tax?

Ruthie: Tell us the difference between sales tax and income tax.

Bekkah: Okay so sales tax your customer is paying tax on a physical product. Income tax is you paying taxes on income that you have generated from yourself or your business. Those are two different categories. People who make a ton of money should be setting aside money or if you make money in general you should set aside money to pay your taxes. And quite honestly set aside money to pay for your retirement but that is a whole other case. You should know that by the amount of income you generate within your business or just in general there are different tax brackets.

As a business, if you make X amount you fall into this tax category and you have to pay like I think the lowest category on the federal level is like 15%. Whereas that if you make more then that tax bracket moves up. For some people it’s really important to realize that they can actually plateau or move backwards. If they move from let’s say you made $149,000 but then the next year you make $151,000 and this is just totally hypothetical because I don’t actually know the tax brackets off the top of my head, right now because they change.

If you go from one tax bracket where say you’re paying 20% on your income from your business and then you are now in a new tax bracket and you jump up and you made $151,000 but now you have to pay 35%. That is a big financial difference even though you only made $2,000 more. Now you have to pay over all way more money. When that happens some people realize, “Well, you know, actually it’s really not worth that much to me to make $2,000 more every year. I’m going to stay within my tax bracket and not make my business grow anymore.”

This can be a smart move for some people that are really happy with where they’re at and they don’t want the extra work, but if you’re thinking, “I want to grow my business I’m going to keep scaling.” You need to factor that in every time you plateau because actually you’re going to dip down and end up paying more to the government right when you pop to the next threshold income tax. We’re going to have more than one episode on this because we could talk all day about taxes. But we’re going to go into our gawk portion and let me just tell you the next episode going to be just as exciting if you are as nerdy as I am.

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