By Julie Morris
With everything that small business owners need to stay on top of, it can be easy to let taxes slide until filing deadlines approach. But waiting until tax season arrives to prepare for tax season is not recommended because it causes more stress and hassle for the already busy business owners. That’s why we have rounded up some of the best steps small-business owners should take to make tax season as hassle free as possible.
Be sure your entity is the best for your needs
Even if you are organized as one business entity, you can switch to another entity if you think it will help with your tax responsibilities. To make this decision, consult a tax attorney or an accountant who specializes in small-business tax law. Of course, each entity has pros and cons, so you need to weigh your options and get a clear picture of what liability and protection each provides and how switching will affect your tax planning and self-employment tax liability.
Be aware of all of the deadlines
Knowing your filing deadlines may sound like a commonsense step, but it is surprising to see the number of small businesses that pay penalties because they miss a filing deadline. Your small business has different filing deadlines than your employees, so you need to be aware of each and every deadline that affects your people and your business throughout the year. Quarterly estimates are due at different times than 1099s are due to your freelancers and contracted workers. And your employees need their W-2s in a reasonable amount of time for them to get their taxes completed and filed. Having a clear knowledge of all deadlines is a must for your company and your bottom line.
Be prepared to support your deductions and donations with documentation
While you may know that you made equipment purchases and have mileage logs from your employees, the IRS will need to see that should you ever be audited. Having files and a consistent documentation process for your employees and yourself is key to having a hassle-free tax season.
While some small-business owners are sure to track expenses and deductions throughout the year, they are lax when it comes to documenting charitable donations. Cash contributions to charities can save you a lot of money when filing your taxes, so you need to keep up with your recordkeeping when it comes to those donations as well.
Use tax preparation tools
Keep in mind that you don’t have to bear the weight of your taxes yourself. W-2 software and 1099 software programs offer tax tools to help small business owners, and many programs are designed especially for small businesses. The IRS also offers some tax tools and resources specifically for filing small business taxes, from instructions for allowable deductions to taking the home office credit.
You also can hire an accountant if you are just starting out with your small business or if you are growing your small business. Look for an accountant that specializes in small business and has a clear understanding of the most up-to-date small-business tax laws. Meet with the accountant prior to hiring him to make sure that he understands your personal and business goals; if he does not seem like someone with whom you can communicate, move on until you find one that does. You must be able to work well with your accountant if the business relationship will benefit your business.
Ensure that your business and personal records are separate
Keeping business and personal accounts and expenses can be tricky, especially for newer small business owners. Prior to tax season, make sure that you have properly tracked your business expenses and kept your receipts and records in the proper files. Keeping the two separate helps reduce your tax liability and could help you avoid an audit.
Small-business owners can reduce their stress and hassles when tax season arrives if they take some simple steps to prepare ahead of time. Our five tips will get you started on the right path.