Is there anything quite like the power high of starting your own online business? Especially when things are going well, it’s just amazing to see your profits growing and think, “I did that?!”
We’re all for enjoying the heck out of this power high. You’ve earned it—you should enjoy it! However, it does come with an advisory:
Mind your taxes.
You Don't Actually Have to Do It All Yourself
There’s a tendency to think that as online business owners, we can (and should) do everything ourselves. Or, at the very least, we should know how to do everything. And that’s absolutely true concerning the actual thing you do for business. (If you’re opening a window-washing business, you should probably know how to get those windows squeaky clean.)
But when it comes to the systems and processes of your business, there’s no shame…and even great honor, grasshopper…in outsourcing to the people who for whom business systems and processes are an art.
When it comes to taxes, this can look a lot of different ways.
Don't Risk the Tax Season Squeeze
Every year, around January 1 or so, we watch with dismay and resignation as the files come pouring into our office. They might be emails loaded with attachments, or they might be actual folders dropped on our desks. The message is always the same:
“I thought I could do my taxes myself. But I can’t figure out all my deductions and time is running out. You guys can squeeze me in…right?”
Alas, most of the time we have to shake our heads no. While there’s nothing we’d love more than to save the day for every online business owner, our team can only handle so much. The reason we can handle as many tax clients as we do, is that we spend most of the year coaching these clients through building their profits and helping them develop a system around managing their business financials. By the time tax season rolls around, all they have to do is file it and forget it.
That’s the beauty of financial coaching, and it’s a benefit that more and more online business owners are finding out about. (About time!)
If you are bent on DIY’ing your taxes, just a few sessions with a financial coach will give you a whopping head start. Learning a few important saving and deduction strategies will save your sanity, come tax season.
To get you started, here are our top do-it-yourself tax tips for online business owners:
If You’re Self-Employed
Money left on the table by not itemizing and taking eligible deductions is more money from your pocket. Pennies add up, so don't just leave a deduction out because you don't think it's worth it. Every dime saved is a dime worth saving. You can also look into setting up a defined-benefit pension plan, a savings system based on your age and income that is tax-deductible.
If You're a Freelancer/Contractor
A “freelancer” isn't really a business owner per se. In our experience, these online workers tend to treat their contract income the same as if it were a paycheck, i.e., throwing it in the bank and forgetting about it. But remember, it’s on you to put away money for taxes! Treat the financial system and plan just as seriously (especially at tax time). If you do a little more work on organizing your finances, it will pay you back 10x in the end!
If You’re an Online Retailer
For someone with an online retail business, such as an Amazon seller, the big question is always to manage inventory or not to manage inventory. When you're just starting out as a cash-basis payer, this might not be quite the big deal people call it out to be. Just remember that once you start a reporting process with the IRS, you need to maintain it! It's hard to “undo” how you report with the IRS once you start it. Don’t shoot in the dark—get counsel on the best ways for your situation.
The Bottom Line
Owning and running an online business will teach you things you’d never have believed you could do. But be wise to the limits of your knowledge, and definitely don’t waste hours trying to beat Uncle Sam at his own game. Getting a little help from a certified financial advisor will ultimately save you money, while teaching you a thing or two for next tax season.