How Small Businesses Prepare For Tax Season
Tax season can be particularly challenging for small businesses and often involves long days and feeling very overwhelmed. But it doesn’t have to be this way, with the right preparation, tax season should go off without a hitch, and here is how you do it:
- Improve Accessibility
Half of the battle is finding the information you need so ensuring that it is easily accessible is excellent prep work. You can do this in several ways:
- Record as you go. Ensure that you are noting every transaction, your stock details, and assets as you go along so that you have accurate records you can easily access when tax season rolls around.
- Opt for automation. Try a program such as QuickBooks or FreshBooks that creates reports from invoices and spending from clients or customers so that you don’t have to. This kind of automation is easy to export and can be used when filing your taxes.
- Store Together. Whether you like to be old school and keep physical records or you are storing digital ones, keep them together so that they are all in one place ready to collate.
- Know Your Credits & Deductions
It is up to you to understand your exemptions and deductions that can save you money so make sure you do your research. If you do this now, you can record your deductions as you go, things like a home office and car count if they help towards your business. Tax season is also a great time to maximise your deductibles by upgrading any equipment or supplies that you need! An excellent place to start understanding what counts and what doesn’t is the IRS’ page on Credits & Deductions for businesses.
- Hire A Professional
Some small business owners may be tackling the books themselves while others will be liaising with an accountant. If you are uncertain, always get a professional to check or do them properly, it can be costly but so can the fines if something is missed or done incorrectly! If you can’t afford an accountant to prepare your accounts you could at least pay for an hour of their time for advice to ensure you are going about it correctly.
- Evaluate Your Year
You may have been so busy with business that you haven’t evaluated how your year has gone financially and whether you have met your goals. Use this time to look at your finances and processes in detail and adapt to your business plan to how things are going. The end of the tax year is a great milestone you can reach that serves as a reminder to take a step back, prepare for the next business year and what you want to achieve going forward!
- Be Honest
You may feel tempted to write off as much as possible and of course, you should utilize your deductions, but don’t lie. Too many deductibles is a red flag along with:
- Using payroll taxes to fund your business without paying back the IRS
- Deducting for ineligible home offices or buildings
- Misclassifying employees
- Poorly labeled deductions
This could trigger a full audit or trouble with the IRS, so it is important to be completely transparent with them. If you come upon their radar, you’ll definitely need to hire a professional.
If you take away nothing else, just remember that tax season can be confusing but the preparation makes all the difference. So now you know, start preparing for next year too!
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Charlotte is a small virtual business owner at Silhouette Creatives, who juggles life with her 4 cats, two children, and husband alongside volunteering. She is always trying to find the right narrative for you and your content.