5 Tips to Help Every Mompreneur Get The Most of Tax Season

If there’s one thing all mompreneurs can agree on, it’s that they dread tax season. In fact, a recent survey by the National Association of Small Business (NSBA) reveals that 38 percent of small businesses reported they spent more than 80 hours a year dealing with federal taxes. That’s two whole workweeks! That same survey found that almost 50% of small businesses spend $5,000 or more annually on the accounting process alone—before paying their taxes! There’s a united sentiment among small business owners that the federal tax code needs reform—specifically, the ability to file personal and corporate taxes together. "Our tax system punishes work, investment, risk taking and entrepreneurship and is unquestionably broken," said NSBA President and CEO Todd McCracken in an interview with CPA Practice Advisor. Not only are taxes time consuming, confusing, and a nuisance, but they can also be a drain on your wallet if you don’t prepare well. This is especially true for mompreneurs who, aside from having to deal with the complicated tax filing process of running a business, also have to run their personal and family life. Whether you choose to do taxes on your own or hire an accountant this year, here’s a quick guide on how to get the most of tax season.   

Familiarize yourself with the lingo

One thing we shouldn’t complain to the IRS about is the amount of tax breaks they offer. Tax breaks give small business owners and freelancers a great opportunity to win back some of that money they’ve been spending on their business, and it’s a unique way to encourage entrepreneurship. However, there is a small caveat to this: it’s hard to keep track of what’s what. There are important differences between deductibles, refundable credits, and non-refundable credits. Each can help you in distinctive ways, so it’s useful to know which expenses qualify for which tax break as you track your finances throughout the year. Investopedia and the IRS website are helpful tools that can break down tax vocabulary into simple terms.   Deductibles

• Benefits: Lowers taxable income and total tax liability. Can help with items that represent reductions in ability to pay tax (i.e. casualty losses).
• What Does That Mean: Because deductions cannot reduce taxable income below zero, their value is limited to the filer’s tax liability before applying the deduction. Value depends on the taxpayer’s marginal tax rate, which rises with income.
• Example: Health care expenses, mortgages, car loans, investment-related expenses

  Refundable Credits

• Benefits: Decreases a person’s tax liability. Same value for all taxpayers with tax liability at least equal to the credit.
• What Does That Mean: Treated as payments of tax you made during the tax year. When total of credits is great than total tax owed, you get a refund for the difference. Credits are more appropriate for subsidies provided through the tax system.
• Example: Earned Income Credit, Additional Child credit, Small Business Health care credit

  Non-Refundable Credits

• Benefit: Lower tax limit as low as it can go. Represents the majority of credits.
• What Does That Mean: Credit cannot be used to increase tax refund or to create a tax refund when you wouldn’t already have one. Savings cannot exceed amount of tax you owe.Example: If you only owe $200 in taxes, and the only credit you’re eligible is for $500, the $300 difference is non-refundable.
• Example: Child and Dependent Care Expenses credit, Saver’s tax credit, Adoption tax credit, Foreign tax credit

2. Don’t procrastinate

Unless you want to have a very stressful week, don’t wait until right before April 15 to prep and file your taxes! Last year, the IRS reported that 28% of Americans waited until the last few weeks before “tax day” to file their return. Sure, you can file for an extension if you can’t make it before the IRS deadline, but there are drawbacks to this, like late fees. And, just because you file late doesn’t mean you get extra time to pay taxes if you owe the government money. Plus, when you take your time to carefully approach a tax filing, it won’t seem as stressful or time consuming. You’re more likely to make an error or miss out on a deduction if you rush the process.   

3. Stay organized

By far, the easiest way to minimize the hassle of tax season is by staying organized and keeping updated records of receipts, payments, and expenses. The IRS demands documented proof for claims, so having everything stored and accessible can reduce a substantial amount of time and pressure.  Organization also helps maximize deductions and reimbursements without the hassle of scrambling to find misplaced financial records. Lastly, it makes it possible to file taxes at the earliest possible time because paperwork is readily available at your fingertips. There are several productivity tools that you can use to help keep your receipts and expenses organized. Check out these apps: EvernoteThe best way to describe this nifty tool is by comparing it to a virtual, mobile workspace. Evernote lets users find, collect, organize, and present information so that it can be turned into a meaningful resource. This can be especially helpful for tax season because it allows users to scan and save, then clip and tag important tax documents for easy reference.  ShoeboxedShoeboxed is a receipt tracking and expense reporting app with a mission to streamline the accounting process for small businesses. One neat feature Shoeboxed offers is Gmail Receipt Sync, a tool that automatically links incoming receipts from Gmail to Shoeboxed. The receipts are processed and organized so that vendor, total amount, date and payment type are extracted and available in a searchable online account—without you ever having to lift a finger. You can also tag receipts as reimbursable or deductible.  FreshBooksFreshBooks is a bookkeeping app that specializes in payment processes and invoicing. The app recently launched its own online payment service giving users a secure way to accept credit card payments online. Its “user-friendly” dashboard makes tracking finances easy and quick. During tax time, classifying workers can get complicated, but FreshBooks allows users to organize invoices based on whether or not the payment is for a contractor or a full-time employee.  Quickbooks for Self-Employed/Small BusinessOutright (we now use Quickbooks for Small Business) is the #1 rated small business financial software. It helps small business startups track, organize and manage their finances.   

4. Stay informed

There’s a lot to swallow these days when it comes to tax codes, especially since the IRS makes changes on a yearly (and sometimes, even seasonal) basis. It doesn’t hurt to take some time researching professional blogs and news sites that can keep you informed on the latest tax changes. The extra initiative will take a few hours of time on your end, yes, but not nearly as much time it would take to prep taxes with little to no knowledge on how to maximize returns. This is especially helpful for mompreneurs who do not have their own accountant. Without a guiding hand, it’s easy to make misinformed decisions with tricky nuances (like filing status, for example). Some helpful sites that give excellent pro advice are Don’t Mess With Taxes, TaxGirl and AICPA.   

5. When in doubt, ask a pro

With an endless supply of information, the Internet of things can answer any question you may have related to taxes. Sometimes though, having 10+ pages pulled up with an overwhelming amount of information can make material difficult to comprehend. If your questions are very intricate and situational, it may be best to approach a tax-expert or CPA. Examples of these questions may include: Do I have a limit for my charitable contributions?Should I itemize deductions? How in-depth?When should I contribute to an IRA?Should I file jointly, as single, or as head of household?I have all these miscellaneous business expenses and reports, but which ones should I keep for reimbursements and deductions?  Sometimes it’s easy to do a quick Google search for these common tax questions. Other times, the answer depends on your business situation, among other variables.  If you have an accountant, keep in touch with them throughout the year. There’s no reason you should wait until tax season every year to speak to them. CPA’s are experts in their field and they’re a great resource that can put you up to date with all the latest changes in tax policy. Stay organized, plan ahead, and you can get the most out of your tax season.