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Tax time is upon us. I want to talk about seven tax saving tips for your pet sitting business.
1. Keep your tax and financial documents for at least seven years.
If you’re ever audited you’ll need those records. Any claims made at tax time require supporting documentation. Keeping good records is an excellent idea for any pet sitting business owner because it encourages organization, always a good thing.
It’s challenging to reconstruct records at a later date. To give you a real quick story about how this is very important, I have been audited twice. They tried to audit me one year after the second audit that I had won. I’m supposed to have five years safe harbor.
My accountant went back and said, “Hey, you guys audited Colleen last year.” They said, “We have no record of that. We have no documentation of that. You need to prove that we did.” Thankfully, we had all of our records. I was able to send it to them so that they couldn’t continue with the audit.
So, a simple system I use is Dropbox, and I have a Financials folder. I have a folder for each year where I store all of my financial documents. There you go, a straightforward system that you can implement today in your business.
2. Understand your loans.
The IRS doesn’t classify most business loans as income. The interest paid on loans is generally a deductible expense. It’s essential to have records regarding the use of any loans, which may be for equipment, or to finance some other activity.
In the year 2020, with all those PPP loans, you must understand how that implicates your taxes and how it’s forgiven if you took out a PPP loan.
3. Know the different types of audits.
First, there’s an office audit, which generally is a simple audit where you’ll be requested to report to your local IRS office to resolve some slight discrepancy.
Then, there’s a correspondence audit where they’ll, it’s hard to say, where they’ll ask you to mail in some documentation.
Then, there’s a field audit, which I went through. These tend to be comprehensive audits conducted at your place of business—very, very stressful. I would never want any of you to have to go through what I went through. I ended up winning, by the way, which was good.
Then, lastly is the criminal investigation audit, which, hopefully, will never happen to anybody watching this video. If you get notified that a criminal investigation audit is happening to you, immediately consult your lawyer because you’re suspected of tax evasion.
4. Pay your quarterly tax bill.
When you have an employer, your taxes are regularly taken out of your paycheck. If you’re self-employed, you’re required to estimate your tax each quarter and pay it. Failure to pay this can result in a significant tax penalty.
You might also end up with an enormous tax bill than you can handle in a single payment.
I did not pay my quarterly taxes for years, and I would stress about it, and I would toss and turn, “Oh my gosh, am I going to have enough money to pay the taxman?” One year I did get caught with a $15,000 bill that I was not prepared for. So, I never again missed a quarterly payment after that experience.
5. Prepare early.
The vast number of tax filers wait until the last minute. If you’re expecting a refund, this can be the worst time to file. The IRS is overwhelmed with all the tax returns that pour in. So, preparing your tax return early leaves you time to find any missing documents and answer any questions, all right? It just gives you peace of mind to get it done with, get the monkey off your back.
6. Get help.
Depending on your business finances’ complexity, hiring an expert to prepare your pet sitting business tax return is an excellent idea.
In theory, the money you spend ought to result in a smaller tax burden. It can be helpful if any legal issues arise. The price you’re going to pay for using an accountant and a CPA lets you know what you can be deducted. You don’t know what you don’t know. That’s going to be money in your pocket that you’re not paying to the government. I’s going to pay for itself to use an accountant or a CPA. That’s number one.
Number two, when I was audited, my accountant was so awesome. He dealt with the whole thing. He knew exactly how to structure the audit. He knew exactly what language to use. He knew exactly how to organize everything, where I easily won that audit.
Without him, I don’t even know what would have happened. That audit was for using independent contractors appropriately. That’s a whole other story. Thankfully I had him because he was an MVP in that experience.
7. Avoid using taxes collected from employee payroll, or that you put aside to pay business expenses.
Don’t do that. That happens when you have all of your money in one account.
My tip for you today is to create a bank account outside of your regular bank. I want you to title it The Government’s Money. It’s not your money.
Every week, you’re going to take a percentage of your revenue; you’re going to transfer it out of your bank into the government money account. By the time you’re ready to pay your quarterly tax bill, the money is there set aside, and you’re not tempted to touch it because it’s outside of your regular bank, out of sight, out of mind, okay?
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