If you do side hustles that generate 1099 income or you run your own solo or small business, you’ve probably already made predictions about how much you’ll need to pay in estimated taxes over the year, how much you’ll earn, and how much you’ll need to spend to keep your business up and running.
Now that we’re on the downhill side of 2017, let’s look at the important line items to see whether you’re on track, and to make sure you’re not glossing over something big that could cost you.
1. Keep Good Records
You should maintain receipts or other documentation for all your business expenses, as well as contracts and agreements with clients, employees, and contractors. Good records can help lower your tax burden, leaving you more money for your personal financial goals.
Tip: One of the basic rules of business is to keep all of your business and personal finances separate. You can accomplish this by using a business credit card and business bank account for 100% of your business income and purchases.
Whether you keep records on paper or electronically, the key is to find a system that works for you and make sure the records are easily accessible for the long term, says Jonathan Medows, founder of CPA for Freelancers. You may need your documents up to seven years in the future.
If you choose a cloud service, make backups.
2. Pay Taxes
Compare your actual income with your projections to ensure you pay the right amount in estimated taxes each quarter. Overpaying keeps cash flow out of your hands. Underpay and you could be hit with a big tax bill and penalty when it comes time to file your return. Unexpected expenses can easily lead to credit card debt, raiding your emergency fund, or dipping into funds earmarked for other obligations.
Medows suggests that you still send in estimated payments even if you work a day job.
Also look for state and local taxes you may need to pay, such as sales taxes. Know how to calculate the amount owed and when and where to pay.
3. Update Your Business Entity
Many solo businesses function fine as a sole proprietorship, but as your business grows, you may need to change.
There are many reasons to change your business entity, Medows says, including to “lower taxes, protect assets, for branding, or if you’re growing and hiring employees.” The U.S. Small Business Administration provides good definitions of each type of business structure, and your Secretary of State’s office will have the information you need to register as the entity that’s right for you.
A change in business structure may or may not change the way you file your taxes. Before you make a change, find out whether the business entity will report on a schedule C attached to your personal tax return or on its own tax forms.
4. Update Your Licenses
Be sure your business license is up to date, and that you have all the necessary local, state, and national licenses that are required for your business.
Industry-specific professional organizations are great sources for information about new regulations that affect licensing and training requirements in your field. Remember that each city, county and state has its own requirements, and you may need to comply in multiple places.
5. Review Your Business Insurance
One critical asset protection tool often overlooked by small businesses is insurance. You can find an agent by asking your personal insurance carrier if they also offer business policies (some do) or if they can refer you. You might also ask friends who are running a business for referrals as well.
Depending on the type of work you do, you may find that a general business liability policy offers enough protection. You may need to add errors and omissions coverage, an umbrella policy, or some other coverage type.
6. Review Your Legal Documents
It may be time for a contracts and legal documents review, especially if you have employees.
Hire an attorney with experience in your industry and licensed to practice in your state to ensure you’re following best practices and protecting your business.
As your business grows, having a trusted legal professional to call on is invaluable. You’ll also find that having good legal procedures and contracts in place may help you get the best deal on business insurance.
7. Forecast Your Near Future
Assess your income, sales and marketing goals. Review your own responsibilities to see if any of them should be outsourced (bookkeeping, for example).
Tip: If your business has grown, this is a good time to evaluate any needs for funding. Use your sales and revenue forecast to determine whether you need to take a business loan to get your business to the next level.
If you don’t have a business credit file established yet, now is the time to start building one. Once you have a file established, a business credit card may help you build a strong business credit score.
Mid-year is a great time to look to the future and create plans and goals to build your business.