Paying taxes is something that applies to anyone who is actively working or owning a business. Moreover, the topic is quite sensitive and can induce anxiety and confusion, especially when it comes to new lines of work that only recently have been included in the IRS’s list of professions and services.
Digital marketing agencies are, sadly, in the position of being relatively new (compared to other industries) and the fact that many use remote workers and spend a great deal of money on various online services may put them in a bit of an uncomfortable position. Still, if you work with a tax specialist, it becomes easier to deal with taxes and everything they imply.
Therefore, we had a chat with a few specialists who work with digital marketing agencies and found some tips that may be of use for marketing agencies looking to cut down on tax and invest more in their own business.
Be Prepared for Filing
When you use the services of a specialist, filing won’t be that much of a burden on your shoulders. Once you’ve sent them all the necessary data and documents, you can rest assured they will be doing their job.
However, if you’re just starting and you find hiring a tax professional out of your budget, you have to take your time and double-check everything for accuracy and correctness. In fact, we recommend using an online professional W2 generator, to avoid any filling mistakes that could be costly.Learn to Estimate your Expenses
The IRS asks LLCs and self-employed individuals to estimate their expenses in order to understand where they’ll be integrated into the tax system. For instance, a self-employed individual has to pay social security, medicare, and income taxes, and if these amount to more than $1,000 the IRS may require quarterly payments (since there is no employer to cover the taxes on your behalf).
That’s why it's important to calculate your estimates correctly, to avoid any penalties or surprises down the road.
Keep Good Records
It’s important to keep accurate records of your expenses (receipts, income flows, transaction information), contracts, and client information. While most of your activity is online and on various devices, a paper trail (even if a digital one) is important for accurate tax preparation and, in case of an audit.
Also, it’s mandatory to keep these records for at least 3 years (although some specialists recommend 5 to 7 years).
Implement Good Accounting Habits
As the owner of a digital marketing agency, accounting can be a bit of a pain in the back side. However, it’s not just about storing receipts and making invoices. When you keep accurate records and stay on track of your expenses and income flow(s), it’s easier to spot any inconsistencies and mistakes.
Additionally, good accounting habits can save you a lot of headaches when it’s time to file for taxes.
Set Aside Some Tax Money
Tax payment day will always come - this is one of the certainties of life you can’t ignore. Therefore, make sure to set aside about 20-30% of your net income (it’s what specialists recommend) to avoid any worries when tax payment day comes. You can put this money in a high-yield savings account, in order to avoid using it for regular payment and get some interest build-up.
Additionally, if you manage to find ways to cut down your taxes (via tax deduction), you may end up with some extra money after you pay everything. This way, you’re always ready to keep your business safe and you may even end up with some seed money for new investment.
In summary
It’s always good practice to use the services of a professional when it comes to taxes. After all, as a digital agency, you understand the difference between hiring a professional and doing things yourself. Still, it’s equally important to implement good accounting habits and plan ahead for rainy days.