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A Small Business Tax Planning System That Works

Owning a small business is like a rollercoaster ride; you feel trepidation upon your initial approach yet courageous for attempting it, you experience the exhilaration of high points and the anxiety of foreseeable dips, and sometimes there’s screaming. (Maybe that’s just me?) Anyway, it’s scary and exciting and stressful and fun—just a mess of emotions. And small business tax planning is one of the many safety devices that can help mitigate some of those stomach-dropping moments. 

(Your accountant or tax professional should be the person who checks to make sure that all systems are go and you’re ready to ride, so run all of this by them first.) 

As a small business owner, tax season can be stressful. Most sole proprietors or small business owners are busy providing the goods or services that they sell and don’t necessarily have the time to fully understand the intricacies of the tax code. Some of us vow every single year that we’ll set aside time to get organized and put a system in place, only to spend a stressful weekend or two scouring bank records and receipts to hand off to our tax preparer.

But what if, instead of reinventing the wheel with a new process or system (or just pretending we’ll do that one day), we incorporated small business tax planning into our already existing accounting method…like our budget?

Small Business Tax Planning with YNAB 

While it’s true that YNAB wasn’t initially designed as business budgeting software, YNAB’s own business budget was originally managed with—you guessed it—YNAB. You can even take a quick trip back in time to see our category set up for that. 

Since it’s possible to have multiple budgets with your YNAB subscription, you can streamline your finances by having your personal and small business budget software all in one space. This is a great option if you run a simple service-based business, don’t manage employee payroll, or don’t deal with a ton of inventory. 

If you’re interested in the how and why of using YNAB as business budgeting software, check out How to Use YNAB as Business Budgeting Software and How to Set Up a Business Budget in YNAB for more information, so that we can get back to the thrilling world of tax planning. 

Get Organized for Small Business Tax Planning 

So, how can you set up YNAB to help keep your business organized for when tax season rolls around? Let’s explore the possibilities: 

Tracking Deductions 

If you use a Schedule C when filing your taxes, you may want to consider setting up your business budget’s category groups to reflect the relevant line items on that form. The category groups you include will vary depending on the type of business you own, but it might look something like this: 

Make small business tax planning easier by setting up budget categories to match a Schedule C.
Make small business tax planning easier by setting up budget categories to match a Schedule C.

Take a look at a real example of a small business budget.

Within each category group, add categories that are specific to your expenses:

Include specific expenses as categories under each category group.
Include specific expenses as categories under each category group.

You can also keep track of deductible expenses by using the flag feature, hashtag, (or a specific emoji, if you’re feeling fancy) in the memo field. Then when you’re preparing for tax time, simply do a search on your “All Accounts” register for that flag, hashtag, or emoji for a full list of deductible transactions. 

Use colored flags or hashtags or emojis in the memo field to track deductions.
Use colored flags or hashtags or emojis in the memo field to track deductions.

The Best Small Business Tax Prep Tool? Reports!

YNAB’s reports feature keeps your income and expense information organized in a way that guarantees you’ll be your tax preparer’s favorite client. 

Need to track individual income sources? As long as you gave each income source a unique payee name, the Income v. Expense report will calculate how much income you earned from each. To export your report: 

  1. Log into your YNAB account on your computer. 
  2. Click ‘Reports’—you’ll find that on the left-hand side of the screen.
  3. The default view is your ‘Spending’ report, so switch to ‘Income v. Expenses’ if that’s where you’re going. 
  4. Click ‘Export’ on the upper right-hand side of the screen and then click ‘Export’ again to download. 
  5. If you’re printing the report, you may have to make some form of sacrificial offering to your printer because printers have a way of doing their own thing. Consult your manual or a therapist who specializes in printer relationship management. 

Need to know what you spent in each category? If you set your budget up to follow the Schedule C, this can give you an easy overview of deductible expenses. Here’s how: 

  1. Follow the instructions above, but select the ‘Spending’ report. 
  2. Select which categories you want to review (or choose ‘All Categories’) and a time range.
  3. Hover over each colored section of the circle graph to see the total amount spent and the percentage of total amount spent or check the right-hand side of the report for a breakdown of categories selected and the spending for each. 
Find out what you spent in each category.
Find out what you spent in each category.

Want a list of deductible transactions? Export selected transactions as a .csv file so that you can print it out or forward it to your accountant. To export selected transactions for a specific payee, category, flag, or memo: 

  1. Log into YNAB from a computer and click ‘All Accounts’ in the sidebar on the left-hand side of the screen. 
  2. Search for the name of the payee, category, flag color, or memo tag in the search field. 
  3. Click ‘View’ to filter those results to a specific time frame. 
  4. Once you have your list of relevant transactions, click the ‘Select All’ option.
  5. Click the name of your budget in the upper left corner and choose the ‘Export # Transactions’ option.

And just like that, with a few clicks and a well-established habit of budgeting, your small business is organized for tax preparation—without adding a new routine or system to your existing workload! 

Interested in more information that will help your small business thrive? Check out our Beginning Balance podcast! And if you don’t already have a budget, try YNAB for free for 34 days! 

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A Small Business Tax Planning System That Works