As a business owner, you juggle a multitude of tasks every day. When tax season rolls around, your to-do list may grow even longer as you dig through all the documents and data required to complete your returns. Your frustration level may grow, too. One way to reduce stress, time, and potentially money, is to prepare for tax season throughout the year. It’s easier than you may think!
Whether you do your own taxes or use a tax professional, here are some tips that can help you get a jump on your taxes year-round.
Prepare for Tax Season: Keep excellent, organized records
When you prepare for tax season there are things you will want to avoid. This includes the last-minute crunch of searching for tax-critical business information by employing good record-keeping strategies. Consider using accounting software to simplify the tracking and managing of everything from receipts, invoices, and mileage to income and bank transactions. Customize your software and sync it to your bank accounts, credit cards, payment apps, and e-commerce tools. This will allow you to run real-time reports and gain insights.
The right software can help deliver peace of mind during tax season. This is also true at moment you want to know where your money is going and what’s coming in. And there are options for paperless organization. This means you can trade rummaging through a receipt-filled shoebox for more time to focus on growing your business.
Understand tax laws
Tax laws can be complicated and are in a constant state of flux. But as a business owner, understanding your federal, state, and local tax requirements is essential when you prepare for tax season. Be sure to always stay on top of the latest tax laws and policies, whether it’s a new tax obligation or a recently introduced tax credit that could reduce the amount of money you need to pay, dollar for dollar. Keep informed by visiting the IRS website or consult with an accountant to ensure you’re in compliance with new tax rules and taking advantage of any eligible tax deductions and credits.
Track your tax deductions
No one wants to pay more than they have to. Small business owners can often write off many expenses. These expenses include office rent and supplies, car expenses and mileage, and business-related travel. Understanding which tax deductions you may be entitled to can help speed up your tax filing process. It can also save you money—a win-win!
You could wait until tax time to go through all your records and messy spreadsheets. However, a better way is to utilize user-friendly accounting software that automatically categorizes your business expenses through synced accounts. Whether you spend money on legal services, contract labor, or other deductible expenses, this software can help you stay organized throughout the year. It can also improve accuracy when adding up your claims. Export your documents when it’s tax time, or share them with your accountant. And it gets better: the software itself is a tax-deductible expense.
Prepare for Tax Season: Monitor finances and plan
Monitoring your financial statements throughout the year will always be beneficial. It can help you uncover issues you may need to address in order to prepare for tax season. For example, it may be a good idea to estimate your potential taxes to minimize surprises. Or use an accounting software system that can forecast money-in and money-out to help manage cash flow.
Paying attention to your finances can also help you understand the impact some of your expenses could have on your taxes, such as if you’re purchasing equipment. Perhaps you qualify for Section 179, an IRS Tax Code which allows businesses to deduct the cost of certain property, like equipment or machinery, as an expense when the year it was placed in service.
Prepare for Tax Season: Know your business tax deadlines
With everything else on your plate, there are also tax filing deadlines throughout the year to keep in mind. Knowing when your taxes are due can help you avoid accruing interest, penalties, and not-so-friendly reminders from the IRS.
Business tax due dates vary depending on your business classification. And if you’re a sole proprietor, partner, LCC member, or independent contractor, you’re required to pay estimated quarterly tax payments.
Have employees? You’ll need to report the amounts of federal income taxes and other payroll taxes you have been withholding from your employees. Payroll is another area where some accounting software solutions may assist by calculating, filing, and payroll taxes for you. One less thing you have to worry about.
View the IRS Online Tax Calendar to determine when your business taxes are due and add the dates to your personal calendar.
Prepare for Tax Season: Set up an inventory tracking system
Obsolete inventory that cannot be sold may reduce your taxable income, so keeping track of your unsold products may save you money at tax time. If you own a product-based business, consider setting up an inventory tracking software system that makes real-time tracking of goods, raw materials, and finished products easy so that you know what you still have on hand.
Prepare for Tax Season: Build a dedicated tax savings account
If you’re self-employed, having a savings account earmarked for taxes can give you peace of mind that you’ll have money to cover what you owe when submitting your quarterly estimated tax filings. Keep the account separate from other accounts, such as your personal, business checking, or emergency fund accounts. Determine your tax bracket and estimate what percentage of your income you should allot toward taxes.
Tax season may never be considered the “most wonderful time of the year,” but it doesn’t have to be the most stressful either. Make tax prep a business-as-usual task all year and help set yourself up for smoother sailing at tax time.