Just because you own a business doesn’t mean that you’re an expert in taxes. If you were an expert in tax rules and regulations you’d be an accountant and not a small business owner. Because of this obvious fact, it’s not shocking when business owners get overwhelmed, stressed out, and make mistakes (which can result in your getting hit with penalties and fees) when tax season comes around.
However, if you follow these 8 simple tactics to prepare your business for taxes, you’ll alleviate a lot of stress and avoid any potential penalties.
1. Don’t Procrastinate
Do you find yourself promising yourself year after year that you’re not going to wait until the last minute to prepare and files your taxes? Stop adding unnecessary pressure and get working on your taxes as soon as you can. The reason? If you’re ahead of the game and start prepping before the end of the year, you’ll have the chance to include moves that can reduce your taxes, such as purchasing new equipment. If you wait until the last minute, you won’t be able to claim these expenses or deductions.
Additionally, your CPA probably has the time to meet with you in October, November, or December. They won’t have that time in February or March.
2. Collect Records and Forms
Before filling out any forms, collect each and every record that you have that shows your business earnings and expenses. You can make your life easier by remaining organized throughout the year and keeping all relevant records in one location – that includes no longer throwing business receipts into a shoebox – and using computer programs, software, or spreadsheets.
Normally, you would want to track the following records:
- Gross receipts for sales and sales records
- Items removed for personal use
- Returns and allowances
- Bank and savings account balance
- Investment interest
You can also use software like Due.com to keep tabs on accounts payable and receivable, along with time tracking and invoicing.
3. Fill Out the Right Forms
There are different forms for different business structures. For example, if you employ contractors, you’ll have to 1099-MISC Form for Small Business Owners, If you’re a sole proprietor or or single-member limited liability company, you’ll be responsible for reporting all business income and expenses on a Schedule C attachment to your personal income tax return.
If you’re uncertain about which forms you need to complete, visit irs.gov and talk to your accountant or tax professional.
Also, don’t forget to gather your employee’s W-4 whenever you hire a new employee and a request 1099-MISC form during tax season.
Bonus Tips: Once you’re aware of which tax forms you’ll need, create a tax folder so that you’ll have them at your disposal, such as 1099s.
And, when you do file your taxes, go the electronic route. It will speed up the process and ensure that your forms weren’t lost in the mail. And, in some cases, it’s actually the law to file online.
4. Review Last Year’s Profit and Loss Statement
While this won’t be exact, reviewing last year’s profit and loss statement will give you a better understanding of how much income you’ll be taxed on this year. It will also clue you in on the amount that you spent on tax-eligible expenses like payroll, travel, and office supplies.
5.Consider Your Payment Plan Options
Don’t fool yourself. You’re probably going to have to pay the IRS something. But, if you’re ahead of schedule and have an idea on what you’re going to owe, you can begin planning on how to make those payments.
If you don’t have enough money set aside, start saving now so that you can pay the amount that you owe. While that sounds stressful, there is a silver lining here. The IRS is more than willing to work with you in setting up a payment plan.
6. Automate Your Accounting
It’s imperative that you keep track of your all expenses. But, do you want to dedicate the time to record each expense in a ledger by hand? Do you want to hire a bookkeeper to keep tabs on payroll and cash flow?
If not, you should consider using accounting software. Not only is it more efficient and accurate than the traditional pen-and-paper method, it’s going to save you a ton of time and money in the long-run.
7. Keep a Calendar of Deadlines
There are plenty of circumstances where business owners are responsible for paying taxes quarterly on top of that April 15 deadline for personal taxes. To prevent missing these deadlines, mark them down in a calendar. Better yet. Place these dates in your Google Calendar so that you’ll automatically be notified when the date approaches. The last thing that you need is to receive a penalty because you missed a deadline.
If you file a Form 1120, it has to be filed it by the 15th day of the third month following the close of the tax year, which is usually March 15.
8. Meet With Your Accountant Throughout the Year
As mentioned earlier, don’t wait until March to meet with an accountant or tax professional. Work with them throughout the year so that they can provide advice and find deductions that you may have overlooked – which means you’ll have less money to pay the IRS.
If you don’t have an accountant, seek a referral from a trusted source, such as a friend or family members, and also make sure that they have experience in your industry or business structure. For example, taxes can get tricky with incorporated businesses. So, finding someone with experience in this area would be a major assist.