Everyone’s filed their own taxes as one time or another, and isn’t it a painstaking process? You’re required to fill out so much information. It’s endless mountains of paperwork if you do it manually. But, in the 2000’s, “e-file” was invented, which made life a little bit easier. However, even with e-file, you can still file your taxes wrong which will hurt your business.
When I started my first company, I did almost no tracking. I didn’t think about it. I was so focused on growing my business that I completely forget to save receipts and write down all of my expenses. Income was the easy part to track. When tax season came around in April, it was a nightmare trying to do those. It two days in front of the computer to reconcile all the business transactions and figure everything out. Even using Turbo Tax didn’t help that much because although we don’t have to manually fill out paperwork anymore, you still have to know where to put different expenses to make sure it’s in the right category and calculated correctly.
Business income has to be separate, so for a long time, I was including it as “other income” on the IRS form. But, I realized that it needs to be under a name. We filed for an LLC, got our name, started an excel sheet to track our total expenses across the various tax categories and that made life easier. Now, to calculate income, we run a couple reports. For the expenses, we don’t need to calculate anything because we’ve got a running total listed in excel with formulas that do it on the fly. The IRS form to fill out is called a K-1. We had to use that because of our partnership agreement in the LLC. We just finished our filing a few hours ago, 2 months late. The penalty as far as we’re aware is $100 a month, so we’re hoping that the IRS reads our apology letter and lets us get out of that one due to naivety. Next year, we’ll certainly be using a tax professional. We tried to save money and lost more instead. Lesson learned.