Tax season is on. Whether you like it or not, it’s time to grab those tax forms and let the government know how your business did last year. Or at least it’s time to come up with some really good excuses for postponing the whole thing until later.
Not much later though: tax season ends on April 15. But while you quickly count how many days you have left before you absolutely have to tackle it, remember that filing your taxes requires more than putting a few numbers into a form.
If you’ve already done some preparations throughout the year, the only thing you have left is find out which tax forms you need to fill out. But if you still keep your receipts in a shoebox/secret drawer/pocket of the pants you had on that day, you have a lot of work ahead of you.
1. Get organized
Who likes paperwork? But postponing it all to a pre-tax season scramble isn’t the best way to deal with it. Digging through a mountain of crumpled invoices at a time when you’re already stressed out leads to errors, misfiled taxes, and looming IRS penalties.
With a little work throughout the year, you can avoid this scenario. Dedicate a day each month to dealing with your finances. Organize and file all your receipts in appropriate folders. If you’re not a big fan of keeping hard-to-read slips of paper, you can make electronic copies of your receipts and keep them in a spreadsheet.
Dedicate a day each month to dealing with your finances. Organize and file all your receipts in appropriate folders.
Or you can even invest in an accounting software. There are several platforms, including Xero or QuickBooks, that can help keep all your finances organized and ready for tax season. As an added bonus, these platforms keep you up-to-date about the state of your business, warning you about overdue payments, low cash flow, or any other impending trouble you may otherwise overlook.
If you have any remaining payments from last year, now’s the time to settle them. Similarly, ask your business partners to honor your outstanding invoices. The goal is to eliminate all unfinished business from last year so you can present a neat, polished picture to the IRS.
2. Keep an eye out for deductions
Paying taxes is inevitable, but who says you have to pay that much? No, we’re not suggesting tax evasion. Instead, look out for potential deductions.
While generally not seen as the most understanding of organizations, the IRS does acknowledge the fact that modern businesses can’t operate with prehistoric equipment. If you bought IT devices, office furniture, or even a tray of paper clips over the course of last year, you may be up for tax deductions.
you bought IT devices, office furniture, or even a tray of paper clips over the course of last year, you may be up for tax deductions.
Check Section 179 to see which purchases are eligible and how to file them.
But it’s not just office equipment that can lower the amount of your taxes. Employee bonuses, charitable donations, or even holiday staff parties with reasonable expenses are all eligible for a nice deduction. So if you haven’t invited Lady Gaga as a surprise guest to your staff party, you may deduct your costs from your taxes.
3. Update your records
Another thing that tends to go south when you file your taxes is relying on last year’s records. If you changed contractors over the year or hired new employees, you may need information from them before you can hit ‘Enter’ on your tax forms.
It’s best to update your database before you even begin your forms. That way you won’t have to leave it half-finished, and need to start all over again when you discover you’re missing some vital details from your hard-to-reach supplier.
Check your database and if you discover outdated/missing information, ask your contractors and employees to give you the missing data ASAP.
4. Check your payroll
Payroll can be tricky. Calculating and filing federal, state, and local taxes, not to mention unemployment and FICA taxes on your employees’ salaries is a tremendous task for small businesses.
No wonder that according to the IRS, about 40% of small businesses end up making a mistake somewhere along the line and have to pay penalties.
If you think managing payroll is too much for you, maybe it’s time to ask for a bookkeeper or a tax professional to help you out.
5. Is something not adding up?
If the year-end figures on your tax form look very different from last year’s, you may have made a mistake along the way. Unless there was a major change in your business that can explain the discrepancy, it’s best to go through your data again with a fine-toothed comb and find out what doesn’t add up.
If you want to avoid an audit, it’s best to even out the numbers or come up with an explanation for the discrepancy.
Sudden, unexplained differences are a red flag for the IRS. If you want to avoid an audit, it’s best to even out the numbers or come up with an explanation for the discrepancy.
Again, if you feel overwhelmed, turn to a tax professional for help. It’s better to pay their fees than contending with an IRS auditor moving into your staff kitchen.