For the average W-2 employee, tax time can feel like a windfall. On the other hand, if you're a small business owner with no employees or self-employed with a stack of W-9s, tax time can feel like taking an ax to your bank account.
If that sounds familiar, it's probably a result of being unprepared. Sure, 2012's taxes still have to be completed, and maybe you're dreading a long night or two sifting through folders of receipts and expense reports to maximize your deductions.
Even if that's your situation for last year, create a system this January that will eliminate surprises and paperwork headaches from your routine next year. Make 2013 the year you get on top of your taxes.
Go Digital with Your Records
Apart from paying, the biggest headache for many people is keeping track of expenses. Companies with employees are forced to either learn the ropes of hire an accountant.
For the self-employed or small business owner without employees, however, it's often more appealing to handle taxes on your own, especially thanks to online services that make the process relatively routine. Consider choosing payroll software that also provides an app so you can keep track on the go.
Related: Tax Software for Your Small Business
For the self-employed, this is actually a legal requirement, but the IRS doesn't exactly hassle you about it; apart from charging you a fee at the end of the year for failing to do so. If paying that fee in the past still hasn't motivated you to set up quarterly payments, do it now.
Your estimated quarterly tax payments for 2013 income are due on April 15, June 15, September 15, and January 15 (2014) - notice that they're not split precisely by 'quarters.'
- To get this set up while filing your 2012 tax return, look at lines 62 (total tax) and 63 (withholding) on Form 1040. Subtract the withholding from your total tax. Then divide this number by four - that's your estimated quarterly tax for next year.
You can make your quarterly payment online or by sending a check with Form 1040-ES to the U.S. Treasury (mailing info on the form). To pay online, register with the Electronic Federal Tax Payment System, where you can even set up automatic recurring monthly payments and spread the load out even further.
Reducing Next Year's Burden
The beginning of the year is also a good time to think about how you can reduce your tax burden for next year.
- Are you paying for high deductible health insurance? Consider starting a health savings account, where contributions can be deducted from your overall income.
- What charities do you want to donate to this year? Planning ahead of time can help you prepare for your end of year deduction.
- Are you paying into a traditional IRA? Those contributions can be deducted from your overall income at the end of the year.
Fiscal cliffs, health care overhaul, and changes to the tax rate aside, resolving to become better organized in your record keeping is a universal improvement that will help you in your taxes every year, regardless of what numbers are being shifted around in Washington. Make 2013 the year you stay on top of your finances, avoiding surprises and headaches when it's over.
Photo credit: sagfoundation.org
Thomas Ford is the Marketing Director of 123Print.com, one of the foremost suppliers of online business cards. You can order from the Design Studio or design your own business cards, as well as customize yard signs, car magnets, photo mugs and other business marketing items.