As tax season rolls around, it can be a time-consuming and challenging process for small business owners to get things in order. The U.S. tax code can be complex, and finding yourself out of compliance could lead to steep penalties. Developing good tax prep habits and maintaining accurate records and practices all year long can help you avoid a lot of last-minute scrambling and chaos when it is time to file. Here are some tips to help you prepare for the coming tax year.
1. Stay Ahead
Tax filing season rolls around at the same time each year, so there is no excuse for not being prepared. However, what you do all year long has a significant impact on your readiness when it is time to submit the paperwork. If your company doesn’t have one already, a financial services compliant software can keep your business records straight and easier to manage throughout the year. When you think about starting on your taxes, make sure all your prior quarters’ financials have been addressed.
You may have to do some estimation for the fourth quarter financials, but since you know how your business tends to run and how it does during the final months of the year, your projections shouldn’t be too far off. Small businesses generally pay taxes based on the prior year’s financials, as the estimated tax payment method allows for the inclusion of expenses to help offset any costs and the tax filing from revenue. Paying the minimum amount keeps more money in your pocket, but has savings for any owed amount that arises.
2. Stick With a Professional
You would be better off working with a tax prep specialist than trying to file your business taxes on your own. There are many loopholes, deductions and adjustments that are involved with the tax structure. You won’t be aware of these nor be able to take advantage of them unless you have the help of a CPA or tax accountant. Not only can an expert help you understand what to do for the current filing season, but they can offer suggestions as to how to handle the paperwork or financials throughout the year to benefit the next tax year.
For instance, some of the risks involved with running a business may get a portion returned from a tax perspective. Inventory that is too old or can’t be sold is often a major financial blow to small businesses. It remains an outstanding debt that your company is suffering a loss on. However, there are some cases where expired inventory can be counted as a deductible expense, helping to recover some of your investment. A tax specialist can help you collect the documentation needed to file the expense.
3. Spend Wisely
As you get ready to prepare your taxes, consider where your money is going. Donating a portion of the income to a local charity is a way to solidify your reputation in the community, but it can also provide you with a tax benefit. Your taxable income is reduced when you donate to charity. It doesn’t have to be a cash donation, either. Products can also be considered a donation, though you will need to keep records and receipts just as you would with a monetary gift.
4. Sort the Documentation
There is a lot of paperwork involved with filing taxes, and depending on your business model, you will have several different forms and filing requirements for employees, retirement or healthcare contributions, and more. You will need W-2 forms issued to employees but also filed with the Social Security Administration. Contracted help for your company requires a 1096 Form, and you will need a Form 941 to report taxes paid for income, Medicare and Social Security. You will fill out a Form 940c for unemployment compensation and a Form 1095c if you offer health insurance to your employees.
With so much at stake, don’t put off your taxes to the last minute. Plan ahead with strong recordkeeping, and hire a tax professional to help you manage your filing requirements.