Excerpts from the book,
How to Become Self-Employed in Seattle:  A Guidebook, Companion, and Reference,

written by Yours Truly

How to Be a ROCKSTAR at Taxes

(Even if You “Hate Numbers”)

 

Here’s how to do the least amount of work possible, and still be ready for tax season. Truly, this is the biggest favor you can do for yourself. Your future self will thank you.

It only works if you do ALL four of these things:

1) With every deposit, always transfer 30% into business savings.  If you collect Washington sales tax, then make it 40%.

2) Use the One Box Method on the following page [below].  This includes reading about what you need to collect. [Below]

3)  Mark your calendar with Important Dates
Download Important Dates if reporting Annually with WA state.
Download Important Dates if reporting Quarterly with WA state.

4)  Plan some work time in January*.  You’ll need to total up some numbers for tax reporting.  You can get some help from a professional or friend, or can use the Numbers section of this book to do it yourself.

Tax time gets stressful when people don’t have enough money, don’t know how to file, or when they’re surprised by a huge tax bill.  This set of strategies is the antidote.  If you’ve collected all the stuff, you’ll be able to file all your taxes.  If you’ve got the money set aside, you’ll be able to pay them no problem.  It will be a lot easier to learn to do taxes if you’re not stressed.

 

Note:  Estimated quarterly taxes start after you’ve filed with the IRS the first time.  So you don’t need to work on those until next year.   

 

* If Washington State requires you to file quarterly, set aside time each January, April, July, and October.  If monthly, then mark work time on your calendar during the first week of each month.


One Box Method, Two Variations

 

The One Box Method is a totally legitimate way to do taxes:

 

1)  Find a box with no lid.
2)  Throw everything in there.
3) In January*, get a bottle of wine and a calculator and do all of your accounting at once.

OR

1)  Find a box with no lid.
2)  Throw everything in there.
3)  In January, hand it to your accountant.

If this appeals to you, then use this system.  If you want to do more now, then please proceed to the second half of the Numbers chapter.

* If Washington State requires you to file quarterly, set aside time each January, April, July, and October.   (VERIFY)  If monthly, then mark work time on your calendar during the first week of each month.

 


Most of the Job is Just Collecting Stuff

Even if you get a bookkeeper or accountant, it’s still up to you to collect all of the stuff they need to figure out your taxes.  Use this list below, or, when in doubt, throw everything and anything into your One Box.

Here’s what you need to collect:

• Receipts for anything that you spend on the business

• Receipts for any supplies you use to make products (COGS)

• Parking receipts

• Bank statements

• Letters from the IRS, state, or city

• Some record of income—maybe deposit slips, copies of the  invoices you give to clients, or receipts.

• Mileage record  (Link coming soon.)

Collecting stuff is the prerequisite to the entire accounting process.  This is why I love the One Box Method because it’s easy, very efficient, and it gets most of the work done. 

 

Consider the accounting process:

A) Collect necessary stuff.

B) Sort and add up categories.

C) Put the right numbers into the right forms.

D) Pay any necessary taxes.

 

The last three steps only work if you’ve done step A.  Other bookkeeping methods are all variations on this theme; complexities are added to gain certain benefits.  If you don’t want to do all the work at the end, then you will basically need to sort and add as you go. Software programs do just that, calculating automatically as you go, as long as you make entries correctly.  The complexity, rhythm and tools are all up to you—what your style is, and which numbers you need to know.