As the tax season approaches, individuals and businesses alike are scrambling to gather all the necessary documents and information to file their taxes accurately and on time. As a business owner, preparing for taxes can be a daunting task but taking the time to prepare can save you from potential headaches and even penalties down the line.
One of the main reasons why it’s important to prepare for tax season is to ensure that you are compliant with all tax laws and regulations. Failing to comply with these laws can result in fines and even legal trouble. Apart from that, keeping accurate records throughout the year and understanding what expenses are deductible can also potentially help you lower your taxable income.
So, to help you get this right, we have put up this post to share some useful tips to help you prepare for tax season and make filing as smooth as possible. If you have been struggling with this, just keep reading!
How Business Owners Can Appropriately Prepare for the Tax Season
#1: Check in with Your Accountant Regularly
Tax season can be a highly stressful time for many businesses, so it’s important to have a reliable and knowledgeable accountant by your side to ensure that you are properly prepared and compliant with tax laws. Finding the right accountant can make all the difference in minimizing your tax liability and maximizing your deductions.
As of 2022, there are 665,612 actively licensed certified public accountants in the US. With so many options available, it can be overwhelming to choose the right accountant for your specific needs. However, taking the time to research and select a qualified professional can save you time, money, and potential legal issues down the road.
So, what should you look out for when hiring an accountant? The first requirement is to make sure the accountant is working in your state. A local accountant will have a better understanding of the state-specific tax laws and regulations. They will be up-to-date on any changes or updates that may affect your tax situation.
For instance, if your business is located in New York City, find the best tax accountant NYC-bound, to help you track your profits and ensure you have a healthy cash flow. They may also offer you advice on how to expand your business.
#2: Collect Your Paperwork
Gather your paperwork at the start of the year. If your business is audited, you’ll be required to show receipts for all deductions. You should consider digitalizing your receipts to avoid worrying about anything getting lost or damaged. Bring the following documents to your accountant.
- Your taxpayer identification number;
- Statement of income;
- Balance sheets;
- Bank statements;
- Payroll records;
- Estimated tax payments;
- Business tax return for the previous year.
In addition, you must send Form W-2 and Form 1099K to each employee and the IRS by January 31.
#3: Balance Your Books
You do not want to be in tax trouble because you made errors or missed transactions. That means you will need to put in the extra effort to make sure that all your business transactions have been recorded and classified accurately.
Ensure you reconcile your account and that your software is in line with what your bank account says. Calculating your taxes is more difficult if your business finances mix with your personal finances. Therefore, it is best to separate your business and personal finances by opening a business bank account. This will make sure that your business finances are organized properly and easily accession in one location.
#4: Understand Qualified Deductions and Credits
Tax credits are an essential part of the tax filing process. Tax deductions lower your taxable income. Tax credits, however, directly lower your business’s tax liability.
There are many tax credits and deductions available to businesses, some of which you may not be aware of, like those for biodiesel or employers that offer employee benefits such as childcare. So, speak to your tax accountant if you believe you might be eligible for a credit or deduction.
#5: Calculate Projected Payroll Taxes
Payroll taxes are calculated and updated throughout the year, along with all expenses and deductions. In general, you must file quarterly if you have employees, if not more. Payroll tax must be deposited as per the law or you will face severe penalties.
Payroll tax obligations and filing can be more important than income taxes for very small businesses. So, make sure you include payroll taxes in your budget and business planning.
#6: Plan for Revenue Irregularities
It can be stressful to write a big IRS check. Businesses should put aside 10% more money than they expect to pay in taxes. Add to the pad any accelerations of payments that may occur in December, as well as what your partners do to reduce their tax liabilities. Identify opportunities to use these practices with your own business’s providers and partners.
Final Note
While business owners have a lot to do, tax planning can never be overlooked. Even though preparing for tax season may not be the most exciting task on your to-do list, it is crucial to avoid potential legal trouble and save money in the long run.
So, as you are preparing your business to achieve its goals, you also need to prepare yourself for the tax season. We already gave you some useful tips that can help you get this correct. So we don’t expect you to have any issues with filing taxes for your business!