So you own a small business and you’re not a tax expert. That’s okay, few are. Your focus is on your business, not on tax rules and regulations. As a result, tax time can be a time of panic and stress as you scramble to get information together in order to meet deadlines and avoid penalties.
The key to minimizing tax woes is to treat taxes like any other business practice: as an ongoing process that needs attention throughout the year in order to be successful. When you begin to think this way, preparing for tax time on a continual basis will allow you to focus on what you’re passionate about: growing your business. Focus on your core competencies.
Having worked with thousands of individuals and businesses over the years, I know first-hand how difficult tax preparation time can be. What ultimately makes tax season more manageable is using technology to help automate the processes, and working with a professional. With that in mind, I’ve listed out seven tips that will help you prepare for tax season all year long.
1. Get started now – After you complete your 2016 taxes, schedule time on your calendar to establish better habits for next year and beyond. You may have promised yourself last year that you’d never again wait until the last minute to file taxes, but just like anything else, life happens and things fall through the cracks. Make the commitment to do better while the most recent tax season is fresh in your mind.
2. Ditch the shoebox – Collecting receipts in a shoebox or other container is highly inefficient and can make year-end even more stressful. Do you even know what’s in there? Can you find it? Start recording everything electronically so you’ll have an archive ready when it’s time to file next year. User a good scanner, such as the Fujitsu ScanSnap and software like Evernote or Dropbox to store your information. And, since now all your information is stored electronically…
3. Back up your electronic records – What would happen to your data in the event of a man-made or natural disaster? Backing up your records and files on a routine basis to a remote location, like in the cloud using Carbonite or Mozy, saves valuable business information. The IRS won’t forgive you because your records are missing, so be sure to have a contingency plan, just in case.
4. Work with an accountant, a CPA – An accountant can be a trusted advisor throughout the year to help you plan properly for tax season. This partnership can also provide sound business advice throughout the year, as many have not only tax expertise, but great business counsel. Build a relationship with an accountant that you trust so that you can tap into this expertise all year long.
There are too many rules to know and understand. Also, the IRS now has over 10,000 forms. Hire a CPA and let them work their magic on your tax return. They pay for themselves many times over and will not only save you money, but will keep you out of trouble. Hire a CPA professional who’s been doing it a while, ten years or more, for the best experience.
5. Use online banking – Most banks let you download all of your transactions. Go in every month and mark the transactions that are tax deductible. When next spring rolls around you’ll have a comprehensive list of tax deductible items ready to go.
6. Automate the accounting process – If you are not using an accounting solution, it’s time to consider one. There are now many online solutions available including QuickBooks, Xero, and Freshbooks. Using online accounting will eliminate the need to invest a large amount of money upfront and you’ll always have access to the latest version of the software. Your accountant can help you determine the best fit, and access by your accountant will save you time, money and frustration.
7. Don’t be late – How do you ensure you’re not late for regular meetings or appointments? You likely have them marked in your calendar and you prepare in advance. Do the same thing when it comes to filing taxes, otherwise you might face hefty penalties; ones that could be avoided with the proper planning. There are more deadlines than just April 15. Businesses must file many different types of tax returns and associated forms. Don’t dump your information on your accountants desk on April 1 – give them plenty of time to get it done in time and accept an extension if you bring your information in late.
Working with an accountant and using tools that make the process easier will not only help you handle tax time, but give your small business a competitive edge, and get you back to doing what you love.