I knew it would be bad. Earlier today, when my gal pal at Block Advisors flashed me my balance due for 2016 Federal taxes, I didn’t flinch. (Well, not outwardly.) You see, I’m dedicated to reducing tax debt. I had prepared for weeks, gathering and organizing receipts. I studied allowable tax deductions for self-employed individuals. I consulted with my financial advisor. I saved a pile of money for just this purpose. But….WTF Uncle Sam!?! OUCH! Try being gentle with a Lady before you bend her over and take her from behind!
Tax bills can be stressful, especially for self-employed entrepreneurs. Quarterly estimated taxes certainly help alleviate the eventual pain of the annual tax bill, but rarely does a tax season pass without some pain.
I won’t interfere with your personal relationship with Uncle Sam, but I’ll share a few things I have learned along the way.
Tips on Reducing Tax Debt
Hire A Tax Professional
Force yourself to get your shit together early and file your taxes. Hire a professional tax preparer. Organize your paperwork as best you can so they are less likely to despise you and more willing to work with you.
Pay Estimated Quarterly Taxes
This was my first year out on my own in a long time so I couldn’t fairly estimate my tax liability. (I believe the IRS does give you a year to figure it out.) However, unless you are super disciplined about setting aside healthy stacks of money without dipping in, pay every 3 months. Per the IRS website, “If you don’t pay enough tax through withholding and estimated tax payments, you may be charged a penalty. You also may be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return.”
My financial advisor gave me this advice and I took it literally. I saved every receipt, every bills, every statement. In hindsight, there were things I probably didn’t need to keep but it was a good practice to do for a year. I used an empty tissue box to hold smaller receipts and a big bin for other paperwork. Earlier this year, I set up a simple file holder right by my front door. I also use a wall hanging file organizer.
Know Your Tax Deductions
Obviously, this is a very complex topic. However, start asking around. Do some reading. Know your rights. Personally, I learned many things from my tax advisor herself but I also did quite a bit of my own research. There are lots of books on the subject, but maybe 475 Tax Deductions for Businesses and Self-Employed Individuals is a good place to start.
Don’t Be Afraid of the IRS
Trust me. They really aren’t that mean. If you need help, ask for it. The IRS website is surprisingly comprehensive. Their phone reps and surprisingly cooperative if you are concise and polite about your problem. If you can’t pay, request an installment agreement. There’s even an arrangement for small businesses. Yes, you will end up paying some interest, but it’s far less than if you don’t formalize an arrangement.
Take It Like a Lady
There is a cost to living the American dream. And it’s called taxes. Instead of being bitter about paying toward the greater good, this Lady likes to imagine a portion of my money being used to help the less fortunate, protect our environment, explore space, and maybe even get our country out of debt. (Check this debt clock. It will blow your mind.) Remember, all the classiest Ladies know how to be gracious and give it to the Man. (wink, wink, nod, nod)