Whether you’re a new or more seasoned virtual assistant, if you feel worried about managing your money and paying taxes, these five ideas are for you.
Fun fact: Back in the day when my business was new, I didn’t have a clue as to what to do, and I made all the mistakes I think a person can make.
They were all wonderful growth experiences, for sure, but one of the biggest mistakes landed me knee deep in debt and in some trouble with….the IRS. ?
It wasn’t intentional, per se. It was just stupid. Really stupid.
It seemed ok to me at the time, maybe even like it was the best decision. But I made the decision alone, without reaching out to anyone smarter about business finances than I was, because I was ashamed that I didn’t know the answers and couldn’t understand the information I was finding on my own.
What led up to the decision was that I needed better cash flow.
I didn’t have the credit score I needed to take out even a small loan or get a new credit card, so I decided to not pay my taxes (quarterlies, specifically), and use that money as a float to carry my burgeoning business. I figured that if I hadn’t made enough to pay my taxes when they were due in April, I’d set up a payment plan with the IRS and that would be ok.
And, while it wasn’t “right,” it worked for a time.
But then, it all caught up with me
When the IRS notice arrived, I was scared out of my wits (it’s the IRS, after all!). And the more I sat with it and tried to decide what to do, the more worried and scared I became. I couldn’t even make myself deal with it, so I hired an accountant to do it for me.
He worked it out for me, I ended up with a payment plan I could manage, and then I got serious about getting out of debt with the Feds, and never landing in that same spot again.
As we head into tax time for 2020, I thought I’d share the top five things I wish I had understood in the beginning about managing my business with regard to paying taxes:
- Don’t play with the money due to the Feds; find another way
As it turns out, the folks at the IRS are nice people (mostly). They want to be nice to you so that you’re easy(er) to work with and matters can be resolved. So, if you must call them, don’t be scared. Be open and friendly. Be gracious and ernest. And, if the person you get connected to doesn’t seem nice, hang up, call back, and get someone else. Truly. You don’t have to talk to the person who answers your call. There’s always someone else.
Having said all that, don’t play with them or the money you owe. Really. Find another way. Bootstrap your biz even more than you have. Get a loan if you can, or a zero-percent credit card with only as much credit as you genuinely believe you can pay back at zero percent. Start a GoFundMe or something like it and ask your friends and fam to support you.
Whatever resources you get, don’t use them if you don’t HAVE to.
- Every time you take in money, put 25-30% away for tax purposes immediately
You may need more or less than that (see #3), but every time you take in money from any business transaction, you need to put your tax money away so that you have it when it’s time to pay your quarterly taxes. Likewise, whatever schedule you’re on if you have a different business type.
Where should you put it?
In a separate account than your regular biz only checking account (you do have a biz-only checking account, right?).
So it’s not easy to spend it, so that it’s no co-mingled with the money you regularly use to fund your business, and so it’s easy to pay your quarterlies when it’s time
- Find a good financial person to help you when you need it, and if you’re beginning, to help you set things up strongly
One of the things I learned the hard way, and now teach new VAs is to create professional teams for their businesses, to include a lawyer, an accountant (could also be a really savvy bookkeeper or another kind of financial pro), a coach, an insurance person, and someone to provide tech support.
What’s most important is for you to identify the people who will support you professionally.
I’m not suggesting that you go out of pocket with them now. What I want is for you to choose them so that when you need help, you’ll immediately know who to turn to. Tell them that’s what you’re doing. They’ll understand.
Trust me when I say that when you’re confused—or worse—in trouble, that’s no time to go looking for the person you’re going to trust to help you.
Make the choice before you need help.
I was fortunate. When I got in trouble with the IRS and was scared out of my wits, someone I trusted with my life had an amazing accountant to refer me to. But did I “choose” him? No. I trusted her, and her trust in him didn’t fail me.
But having a set of professionals that I’ve now chosen and trust with my life is SO much better.
So, look around (ask other business owners who they love!), do some consults, and find your financial person.
That person may be smart to give a bit of money to (if it’s not part of an initial free consult) in order to tell you how much you should be socking away for quarterlies, advise you on setting up whatever system you’ll use to keep your books, etc. By the way, if someone tells you that you need something like QuickBooks, but you only have a couple of clients, challenge that. Ask about other ways to keep tabs on your finances without spending $100+/year.
Whatever system and processes you land on, do those, and do them all the damn time.
- If you feel unable to do those things for yourself all the damn time, find a great bookkeeper to help you
The single best thing I ever did for myself was hire a bookkeeper because, when all is said and done, I am not-at-all adept at managing the financial pieces of my business. I’m not ashamed to admit that, anymore, either.
Back in the day, though, I was the one who, feeling overwhelmed by it all, didn’t reconcile statements, didn’t record expenses, didn’t do anything until it was tax time, and then I’d spend a week trying to unravel a year’s worth of financial goop.
Now, Jess does it all for me, and does it brilliantly. She also gives me monthly financial reports, and, at year-end, she provides me with tax-ready books. Or, I should say, she sends them to my wonderful accountant. I don’t even have to do that piece of things.
And, if numbers really aren’t your thing, have someone else do your taxes each year. Just because we have things like Turbo Tax doesn’t mean that we can use it well (chances are you don’t at all understand the intricacies of business taxes), or that the software won’t miss something. A good tax-prep person is worth his/her weight in gold.
I like having a relationship year in and year out, with my accountant. But you can get your taxes done by a solo (meaning not part of a big corporate tax-prep company) tax prep person who only helps you once each year (here’s someone I love!) or go to one of those larger service companies like H&R Block or Jackson Hewitt.
- Be sure to keep your records, and let go of them appropriately, too
The IRS recommends you keep your biz records for three years (assuming you’re filing returns and not being fraudulent in what you file).
You can certainly store statements online, along with a digital copy of your return. But throw all your receipts in a big manila envelope, note the year they’re for, and file that somewhere.
Again, assuming you’re doing what you’re supposed to, you can feel free to delete and destroy them in three years. Put that on your calendar and do it with great glee.
That’s five… but here’s a bonus….
Get an EIN. Don’t use your Social Security number
I resisted this for years. As a result, my SS# is far more exposed than I wish it were.
People without businesses can’t get EINs, but you can. So, do. The IRS makes it easy.
Listen, handling your business-financial responsibilities can feel really hard. I really get it. The thing is, while the responsibilities are yours alone, there’s plenty of help to make it easy(er) on you. Be sure to get the help you need so that you don’t end up making poor decisions out of fear or overwhelm. This will help you, long-term, as your business grows. And, once your business is bigger, you’ll be so happy that you did it “back in the day,” and don’t have to worry about it.
Oh, and, no shame, y’hear? Very few of us have grown up in fams that taught us smart financial skills. And, even if you’re one of those lucky ones, you probably weren’t taught business financial skills.
So, know that it’s really ok to not know. Where that goes off the rails is when you refuse to reach for help. Willful ignorance has never helped anyone, ever.