As a small business owner, you may not have the luxury of an in-house accountant to assist you with your tax preparation each year. In fact, according to Bloomberg, about 46% of business owners don’t work with an accountant at all. Around 40% of small business owners spend up to 80 hours preparing for and processing their federal taxes. That’s a huge chunk of time, especially if you’re squeezing it in right before the April deadline. Instead of putting the work off until the last minute, follow these tips to break the tasks into manageable pieces and get everything done with the minimum amount of stress.
Set Up an Excellent Accounting System
You don’t have to have an accountant in order to keep neat, accurate records. Invest in a bookkeeping program, one that works for your business and your lifestyle. According to CPA Practice Advisor, a system could be basic, like a Microsoft Excel spreadsheet, or more complex and comprehensive, like QuickBooks. Having the system in place isn’t a magical fix-all; you’ll need to keep up with it regularly and input all the necessary information. Consider setting aside a block of time (such as a morning or afternoon) each week to enter information and deal with related accounting tasks.
Keep Track of Expenses
Throughout the year, you need to keep careful track of business-related expenditures. Keep a file with receipts organized by year and month, and subdivided by category, such as meals, gas mileage, entertainment, and related expenses. Some small businesses have notebooks or documents to which they can add notes about various expenditures. Hopefully, you won’t ever need the notes or receipts; but if you are ever audited, they will be of immense value.
Do Quarterly Tax Estimates
Every quarter, review the numbers for your business. Taking a good look at the losses, gains, profits, and other important financials is not only a good idea for business strategy purposes— it also minimizes the effect of unpleasant surprises at tax time. Keep track of your profits throughout the year, and do a quarterly estimate of your April taxes based on those numbers. That way, you’ll be ready when tax season rolls around.
Remember the Independent Contractors
Does your business use independent contractors? Remember that you’ll need to send those individuals the appropriate forms. Be sure that you’re filing the 940 and 941 forms and sending out all applicable W-2 forms to any employees or contractors. If you pay someone more than $600 in one year, you’ll also need to complete forms 1099 and 1096 and send those to the IRS.
Maximize the Deductions
The government may seem to be after all your money, but if you look closely, you’ll see that there are many structures in place to help you minimize the taxes you have to pay. Examine the tax rules and regulations and see which exemptions apply to your business. Find out which deductions you can take, and try to adjust your spending each year so that you can maximize those deductions. Did you use your car for business? You can deduct a percentage for that. Did you start a new business? More deductions are involved for startups. Check and double-check to make sure that you have taken advantage of all possible tax breaks.
Hire an Accountant
You may not want to hire an accountant, but in some cases, it is necessary to consult with one. If your business’s affairs seem to be in a hopeless tangle and you’re stressing yourself out trying to plan for tax time, it may be worthwhile to pay an accountant to help you out. When you’re starting your small business, an accountant’s advice can be extremely valuable. Learn from your accountant, ask lots of questions, and soon you may be able to take over and handle all the taxes yourself.
The key piece of advice from the experts is “Don’t leave everything till the last minute.” Start planning for tax season weeks, months, even a year in advance, and divide the work into manageable chunks so you don’t overburden yourself. With accounting software, careful records, and a time management strategy, you can breathe easier when April 15 arrives.