Tax Season Prep: 5 Steps to get you ready now
According to Benjamin Franklin, there are only two certainties in life: death and taxes. Although tax season is still a few months away, it’s advantageous that business owners start preparing for it now. There are certain steps that need to be taken to be able to report the right amount to the IRS and make sure no mistakes are made on your taxes.
Collect Business Records
We’ve all seen movies where frustrated business owner bring a box of receipts to their accountant come tax time. Don’t let this be you—a good rule of thumb for any business owner is to have a systematic way of collecting business records for tax time. If you get in the practice of careful filing of your documents, you will not need to scramble in the spring and spend your time looking for records or frantically calling vendors to ask for receipts or invoices.
An electronic system where you can keep track of all business-related earnings and expenses will make it simple to determine your overall income and deductions you may be eligible for. Plus, this will foolproof your filing system and allow you to access information from anywhere, anytime. Certain programs, such as Quicken and QuickBooks allow you to download your financial information straight unto your tax return.
H&R Block provides a useful checklist of all expenses that will determine your taxable income.
Separate Business and Personal
One of the most common mistakes that small business owners make is failing to separate their business and personal expenses. It’s vital to utilize business checking accounts and credit cards to clearly understand what your business expenses and earnings are to report the correct taxable income amount and determine what deductions you may be eligible for.
If you fail to do this throughout the year, you will spend days trying to determine what amounts were used for your company and what was made for yourself.
Although it’s not something anyone likes to think about, any business has the chance of being audited. To protect your company, make sure to keep all business-related receipts. The good news is that there are several receipt apps, such as Shoeboxed, which allow you to scan receipts and keep their digital copies. Plus, the apps can be integrated with certain accounting software, making the tax preparation process quick and seamless.
Before submitting your tax records, review your payroll information with a specialist to verify that everything was calculated correctly and legally. Payroll mistakes can be costly; 40% of businesses pay over $800 to the IRS simply for payroll errors.
Know Your Deadlines
Federal taxes are not the only taxes businesses are responsible for. There are also local city taxes, self-employment taxes, property taxes and payroll taxes, all with their own stipulations, forms and deadlines.
Research these deadlines and note them in your calendar so that you are not penalized for late filings.