Tax season is one of the most stressful times of the year for many entrepreneurs and small business owners. There are lots of documents to organize, deductions to determine, and the worry that you might not be filing properly and could potentially be on the shortlist for an audit. Is there anything you can do to prep for a smoother filing process? We spoke to several small business experts for their advice on how to worry less and get prepared when it comes to tax season.
1. Plan for, and track, your expenses
Ty McLaughlin, CFO at OnceLogix, suggests entrepreneurs plan their expenses for 12 months. Track expenses daily and set aside money for taxes. Aside from planning for tax season, McLaughlin says this allows ‘treps to plan for emergencies and implement quarterly taxes. By planning earlier than you ordinarily would, you will have all of your tax documents organized and readily available for any tax preparer you may work alongside.
2. Use a business credit card
How does this factor into tax prep, anyway? Gerri Detweiler, Education Director at Nav, recommends using a separate business credit card for business purchases rather than charging all of your purchases on a personal credit card. This keeps business purchases from mingling with personal expenses, making it easier to track and building your business credit along the way.
3. Keep your books organized
In between tracking expenses, one of the best ways any small business can stay organized is to maintain and keep up with their books year-round.
Not sure how to get started? Priya Mishra, Managing Attorney at Top Tax Defenders, recommends filing every business document the moment an entrepreneur receives it into one of three categories: income, expenses, and business/tax documents. Any expense documents should have the business purpose written on the receipt in case of an audit. Aside from hanging on to paper receipts, business owners may also want to scan their receipts using a software program like QuickBooks to store records for several years.
Organized now pays off big time later. Micah Fraim, CPA at Fraim CPA, notes that this kind of early bird prep helps plan ahead for what the tax bill will look like and allows entrepreneurs to strategize on how to reduce that tax bill. With the recent passing of the Tax Cuts and Jobs Act (TCJA) this year, it also gives small business owners a head start for filing in 2018. Steve Griffin, Founder of GRIFFIN Tax, says this will be key when considering the new section 199A 20 percent pass-through deduction, which will result in huge tax savings for many small businesses, but will almost ascertain that a more stringent bookkeeping system will become the topic of concern.
4. Share your goals with a tax professional
If you’re really unsure that you can do your taxes, don’t try to guestimate your way through the process. Lisa Rowan, Personal Finance Writer at The Penny Hoarder, advises working alongside a tax preparer for extra help and to share more about your financial goals for the coming year. “If you’re working towards a larger revenue goal, make sure your tax preparer knows about your best and worst case sales scenarios.” Rowan says.
She also advises sharing any major expenditures you anticipate, like new equipment or moving to a larger location. By planning ahead with your tax preparer, you’ll be able to get ready for any tax implications, such as an increase in income, that could affect your tax burden at the end of the next year.
5. Don’t panic!
By the end of January, most taxpayers have collected their paperwork from their employers and are in the process of filing their taxes. However, small business owners have a different timeframe when it comes to filing business taxes and sometimes it can make you feel as though you are falling way behind.
According to Anthony E. Parent, Co-Founder of Parent & Parent LLP, most small businesses haven’t completed their tax returns yet. This is mainly due to the complexity of their taxes and extra tax forms that need to be completed. “September 15th becomes the extended due date for the most commonly used business tax returns like Forms 1065 and Form 1120-S. If you are a taxed as a sole proprietor you don’t have separate business returns to file, so you file your business income on schedule C of your personal 1040, which is due October 15th.”
So, keep calm and don’t worry because you still have plenty of time to file. Take a deep breath, follow these five rules, and you’ll be on the right track to tackling tax season.
Planning to start a small business during tax season? Give us a call at 1-877-692-6772, or visit us at mycorporation.com for all of your small business needs.