With the tax season just around the corner, many business owners are beginning to stress about filing their taxes. By getting your tax return preparation work done ahead of time, you can alleviate concerns around potential mistakes or even missing the deadline.
If you are not sure where to begin, follow these 5 steps to prepare your business for the tax season:
Step 1: Get your bookkeeping in order
Tax season can surely be dreadful if you aren’t properly prepared to file your return and pay your taxes on time. And to lessen the stress, it is imperative for your business to start your catch-up bookkeeping sooner, rather than later.
As a business owner, you need to make sure to update all books to reflect any end-of-the-year transactions and prepare your tax records for your accountant. For a double-entry accounting system, books must be balanced so that the sum of all credits is equal to the sum of all debits. Obtain your final bank account statements for the year and make sure your books match the bank records.
If you don’t have the time to manage your books, getting a bookkeeper or using an accounting software are great ways to stay organized. Not only will your books remain up to date, but your bookkeeper can also coordinate with your accountant during tax season to ensure that your filing’s done right.
Step 2: Take advantage of tax credit and available deductions
Taking advantage of tax credits and deductions is important for every business as it can save you a lot of money. Tax deductions reduce your taxable income, while tax credits lower your balance owing come tax time.
There are several business tax credits that are available for businesses. You may go to the IRS website to research what credits apply to your industry. Or if you want to make sure you don’t miss any potential deductions or credits to maximize your tax savings, check with your tax preparer to clarify what your business might be eligible for.
Step 3: Organize your relevant paperwork
Whether you’re doing your own taxes this year or hiring a tax professional to do it, it is crucial to have all the information and documents ready before tax time. The worst thing you want to be doing is scrambling to get all your financial data together during the last minute. This may lead you to filing with inaccurate information which could end in potential fines, penalties, or even prosecution.
You should make sure all your documents showing your income and expenses, ideally in both paper and digital form are organized and accessible. In case that the IRS audits you, having this thorough documentation will be invaluable.
· Records of all income, including 1099s received from clients
· Receipts for business-related expenses
· Past tax information, including your quarterly filing paperwork
Step 4: Save portion of your profit for taxes
As a small business owner, you should always set aside money for paying taxes. And the amount that should be set aside would vary depending on the state and the kind of business you own.
You may have heard of the 30% rule, which means setting aside 30% of all profits each month to save up the amount you will need come the end of the tax year. If your business is not generating enough profit to place in the higher bracket, this idea would be beneficial. 30% of your total profit might be more than what you owe in taxes. However, it is always better to have a small buffer than to owe more than what you have saved.
Step 5: Do your research on recent tax law
Knowing the recent tax law will help you reduce errors when filing taxes. This is because they are deterring what is taxed, how it's taxed, and to what extent it is taxed. One of the most important parts of tax laws is that they provide you a sense of security, especially when planning an annual budget. Therefore, make sure to do your research on the recent changes to make sure your business will stay in compliance.
Tax season does not have to be something to dread. If you prepare your documents, take the proper steps, and compile the information you need, your annual tax filing will be simple and painless. Remember, preparation and planning ahead are key components of success!
Do you need assistance planning your income tax strategy to cut down your tax bill? Legacy Solutions is here to help! Book a FREE strategy call now by clicking this link: https://calendly.com/legacy_solutions/strategysession