Tax season can be a stressful time, especially for small business owners. However, with some organization and preparation, you can approach tax season without all the stress. Set aside a day to focus on tax preparation, ideally in the final quarter of the year. This allows you time to get organized and track down any missing documentation before the year comes to a close.

1. Centralize Your Documents

The key to a successful tax filing is organization. If managing paperwork isn’t your forte, you’ll need to establish a system that works. 

You can use accounting software to manage your business all year long and make tax time easier. If you’re not already using software in your business, now may be a good time to upgrade. Many providers offer end-of-year deals that can help you improve invoicing and manage tax-related documents. 

You’ll need to collect:

• Bank statements
• Receipts for business expenses
• Invoices
• Payroll records
• Last year‘s return

Set these items aside in a folder on your computer or secure cloud network. If team members are assisting you, share access with them to lighten the load and reduce rework. 

2. Categorize Your Expenses

Businesses write off many expenditures, but it’s critical to have them categorized and accounted for in case of an audit. Your accounting software can help you stay on top of this year-round. However, if you haven’t documented these categories, you’ll need to dial in the details. 

Review your expenditures like:

• Office supplies
• Travel expenses
• Equipment purchases
• Advertising

Review these items and determine if they are deductible or must be depreciated over time. If you’re not sure if an item qualifies, label it so you can discuss it with your tax advisor.

3. Separate Any Personal Expenditures

If you combine your business and personal expenses, tax time can be tricky. Separate these expenditures now to make deductions and business expenses easier to identify. 

You may want to consider permanently separating them by opening a separate account for business expenses. If you have a team, ensure that you have clear policies on reimbursements and personal use of business assets. This can make for a more enjoyable experience year-round and less stress during tax time.

4. Audit Customer Invoice Records

Review your customer records to ensure that invoices have been paid in full. Compare business deposits and invoices to reconcile your accounts. 

If you have clients who have not paid, coordinate re-billing them to collect payment. Consult with your tax advisor on what to do about clients refusing to pay and how to document lost income.

5. Compare Last Years’ Filing for Consistency

Oftentimes, prior years’ tax records can be a helpful guide in preparing for the next year’s taxes. Unless something significant has changed in your business, you’ll likely need similar documentation. 

Review your prior tax filing, and compare it against how you’re tracking for income, expenses, and profit this year. If you missed any deductions last year, review your file to ensure they’re accounted for this time.

6. Reach Out to Your Tax Advisor for a Pre-Season Chat

The time to clarify any tax changes is before the tax year ends. Schedule some time with your tax advisor now to go over your status, needs, and questions. 

This can be accomplished during a 30-minute video chat, so don’t hesitate to reach out to them. Many advisors offer advice for repeat clients in their email newsletter, so review your advisor’s recent messages for tips. 

7. Review Tax Credits, Laws, and Limitations

Get up to speed on any changes in tax law by reviewing the Internal Revenue Service (IRS) website. Source insights from reputable sites like Investopedia, which often highlight important tax changes. 

If your business is eligible for a tax credit or rebate, confirm the requirements, deadlines, and documentation needed. Some businesses are eligible for rebates for energy-efficient office updates and hiring and training efforts. Review your state tax office website as well, as many offer economic development credits for small businesses.

8. Check Payroll Records for Withholding Accuracy

An unfortunate oversight during payroll could mean the demise of your business. If you have employees and you manage withholding for them, review your payroll records for accuracy. 

Audit your accounting software to ensure you withheld the proper taxes for your employees and sent it to the IRS. Review your plan for issuing W-2s and 1099s and if software can automate the process, reducing errors and improving timeliness.

9. Make a Checklist for Filing

Condense your tax prep efforts into a checklist that goes through each step and document you’ll need. Since the year is still underway, focus on creating a game plan instead of double work. 

Send this checklist to your tax advisor or use one that they provide. This can help you identify what you need to track down now and can ease anxiety about tax filing.

10. Plan for Next Year in Tandem

Preparing for taxes may reveal efficiency opportunities in your business for next year. If your reconciliation efforts seem challenging, you may need to make it a monthly task.

Use this time to review your current business processes and how they relate to taxes. Designate a team member to help complete monthly financial tracking to improve your tax experience each year.

Make a Game Plan for Taxes All Year Long

Preparation is key for any endeavor, and preparing for taxes can help your business be more efficient and more profitable. Leverage accounting software to ensure accuracy, compliance, and centralize documentation. Make tax planning part of your monthly processes and mindset to reduce surprises and leverage tax savings opportunities. Be proactive in planning and follow these steps to set your business up for success and less tax-season stress.

Disclaimer: This content is for informational purposes only and is not intended as financial advice, nor does it replace professional financial advice, investment advice, or any other type of advice. You should seek the advice of a qualified financial advisor or other professional before making any financial decisions.

Published by Elle G