So you own a small business and you’re not a tax expert. That’s okay. 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 receipts together in order to meet deadlines and avoid penalties. There are other opportunity costs associated with doing taxes yourself, likely a combination of increased expense for the last minute help of a professional tax expert, forfeiting deductions, additional stress, and most importantly, taking time away from your business.
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.
As a former small business owner, I know first-hand how difficult tax preparation can be. What ultimately helped me make tax season more manageable was using technology to help automate my processes and finances, and working with a professional. With that in mind, I’ve listed out eight 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. 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, saves valuable business information. You can back up on-site as well, but it’s important to keep information stored away from the office. 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 – An accountant can be a trusted advisor throughout the year to help you plan properly for tax season. This partner can also provide sound business advice throughout the year, as many have specific industry expertise. Build a relationship with an accountant that you trust so that you can tap into this expertise all year long. Your bottom line will thank you.
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 aren’t using an accounting solution, it’s time to consider one. For me, software was instrumental in driving efficiency and accuracy all year long. When I operated my business, I used installed desktop software, but now there are many online solutions available. 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 tool. Your accountant can help you determine the best fit, and bonus points if the solution lets your accountant have access to your real-time data.
7. File online – It makes good sense to file your taxes online as it’s faster, is less prone to errors, and in many cases, it’s the law. There are certain forms that are required to be filed electronically, which is where your accountant comes in with an understanding of specific tax requirements for small businesses.
8. 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.