So you're passionate, you're motivated,
hardworking, and you're ready to start your own handmade business.
There's just one thing that's stopping you or it's something you're really worried about.
Taxes. I know, managing taxes as a new business owner can feel so daunting. Even for me,
as a business owner who's been doing this for 15 years
now, it's still daunting. You might even be hesitating to start your business altogether
because you might be afraid of making tax
mistakes that could come back and haunt you.
It's serious stuff, right? But I think it would be such a shame to let tax anxiety
stop you from making your dreams come true if you really want to start your own handmade
business. So, today I'm going to offer some tips
on what to do or what you need to get set up ASAP when it comes to taxes as a new business owner.
Now, it's important to note that I am not an accountant or a tax professional.
So this isn’t official advice,
okay? But I have been running my businesses
for over a decade now and I've had to deal with a lot of taxes
and let me be the first to tell you that
once you understand these things
they're really not that complicated.
Also, because there is just way too much stuff in the world of taxes that we could talk about,
I'm only going to cover five major points today.
Hi, my name is Mei Pak
and I help artist, makers, and designers make a living selling their handmade products online.
Today, I'm going to help you become tax confident.
My first piece of advice is to separate your personal and business money.
This can be as simple as opening two regular checking accounts at your bank,
one for personal, one for business. Why is this important?
Well, when you blend your business money with your personal money,
it can get super hard to keep track of where your money is coming from,
and therefore, how much money you should be putting toward business taxes.
When you go into business
for yourself, you need to pay income tax
as well as self-employment tax and how much you owe in taxes
is hinged on knowing your business revenue and expenses.
So you need to be crystal clear on your business numbers.
The more organized you are the easier
it will be to get your taxes in order because you won't have to spend hours
dissecting every single transaction to figure out if it's related to your business or not.
This just gives you a simple, clean record that you can cipher through come tax season.
With that in mind, I recommend practicing spending money only from your
business account if it's related to your business.
So every time you need to make a transaction for your business,
dip into the business account instead of the personal account that you would normally
use for things like groceries or Netflix.
Tax season is so much less stressful
when you've got everything systematized and you're practicing
good bookkeeping habits throughout the year instead of
trying to figure out which purchases came from
which account at the last minute. Secondly,
we just touched on this, but you should seriously look into using bookkeeping software.
Whether you learn how to use it yourself, or you outsource,
this software will be a total lifesaver during tax season.
I personally use Bench.co at the recording of this video.
Bench is great for me because it's a bookkeeping software that comes with a
real-life bookkeeper who actually balances your books
for you. Through Bench,
I can connect with all of my sources of income at once,
from my Shopify store, to my Etsy,
my PayPal and anywhere else I might be making money.
It also syncs with your expenses,
like your business credit card,
and any spending that takes place directly through your bank accounts.
So it goes without saying that bookkeeping software is a must-have. As business owners,
we have so much to keep track
of and our money is coming in and out of such a large variety of places that any software
that can help us stay efficient and organized is a game-changer.
Bookkeeping is also just great business
practice as it helps you get intimate with your numbers,
which is so important for any business owner to know where they stand financially,
at all times. Now, there are plenty of other bookkeeping software out there
besides Bench. For example, QuickBooks online is probably one of the most popular options out there.
Personally, though, I thought QuickBooks was a little bit harder to use
for people who aren't professional bookkeepers and I always say if software is hard to use you’re
just not going to use it. Bench is just a lot more user-friendly
for the layman, in my opinion.
Wave App is another software that has really positive reviews.
And I also loved using GoDaddy bookkeeping.
So you have a lot of options. So just do some research, weigh the costs,
read the reviews, and check out their features to find the best fit for you.
The best part about bookkeeping software is that they help you easily calculate your profit
once you've connected all of your financial accounts into the software.
The alternative would be to use spreadsheets
and import all your transactions which includes money going in and money going out
and doing all the organizing from within said spreadsheet.
That's just a huge time suck in my opinion
and not worth the effort when you can invest in something pretty affordable,
even free with many of the software options out there.
What I personally love in a bookkeeping software is being able to see at a
glance at any time how much money I'm bringing in
and where I'd like to be in the future. Conversely, I
can see where I'm spending my money and if I'm less profitable that month,
I can quickly pinpoint where I'm overspending
in and adjust my budget accordingly for the rest of the month.
It's really hard to have that kind of financial Insight by just looking at your bank account
or your PayPal accounts. Tip number
three is you want to get comfortable filing quarterly
estimated taxes. That way you won't be surprised with a huge payment
when tax season comes around because you already have money
put aside for payments and have a pretty solid idea of how much you'll
need to give. Bookkeeping software that you maintain
and check regularly
definitely helps you figure out how much estimated tax you owe.
Tip number four is you need to consider sales tax.
This can be a steep learning curve for a lot of online business
owners, but once you get the hang of it,
it's not too complicated. Basically,
you'll need to collect separate sales tax for the state you live in.
And if your state has a nexus,
you have to pay sales tax for that state as well.
A nexus is the requirement that sellers register
as a business and collect and remit sales tax in any specific state
once they start making sales over a certain amount.
Now, the definition of nexus is different for every single state.
So you will need to do some research to find out the laws of each state
you make a sale in. Now If you try to do this manually,
it is going to be a lot of work,
especially for online businesses who are potentially making sales in all 50 states.
That's time you should be spending on doing marketing,
making sales and making money or designing new products.
So that's where TaxJar comes in. I pay $20 a month
for TaxJar to keep track of all of my sales taxes for me and tell me what states
I need to collect sales tax for and for a small added fee,
it also auto-files sales tax from you, so I don't have to worry about that
either. To me, it's well worth the extra monthly cost to save me the time
and risk of making a mistake by trying to handle this
all on my own. Still if you do choose to handle sales tax manually,
it is best to keep efficient records of every sale and track
how many sales you've gotten from each state over each year.
When you pass the nexus threshold for a state,
you have to start collecting taxes for that state.
If you don't that can be a huge headache
and to me it is just not worth the risk of missing anything or messing anything up.
So with that in mind, I highly recommend TaxJar and no I am not affiliated with them.
Tip number five, is you don't necessarily need an accountant to file taxes for you,
although I know a lot of people employ one and they can be great
if you need to get creative on saving on taxes like with deductions,
But if you don't have a very complicated tax profile, TurboTax is a
super easy software to file taxes with yourself.
When my businesses were all still sole proprietorships or LLCs,
I just used TurboTax. If you need the extra support and have customer support
you can always upgrade your Turbo Tax package to include consulting with a tax accountant
so you never have to feel lost. It's still way cheaper than working with an accountant.
I hope this helps you understand how to manage your taxes as a new business owner.
Yes, it seems so daunting.
But once you have your systems in place,
it's actually relatively simple.
So don't let the fear of tax confusion
keep you from starting your business. It is a part of the process
and it's definitely one of the least fun parts of it,
but it is so worth it.