Tax season always seems to sneak up on you, even though it comes simultaneously each year without fail. When you run a business, paying your taxes and keeping your books organized will benefit you, even if it can feel like a huge overhaul.
Filing an accurate tax return is a must when you run a business, as the results of filing incorrectly or simply not filing at all could be detrimental. It may not be a glamorous task, but it’s essential.
Don’t worry about ensuring your business is ready for this upcoming tax season; just keep reading to find ways to make this tax season a breeze.
When Is Tax Season?
The better question might be: How long is tax season? For many people and businesses, doing taxes is one of the least fun ways to ring in the New Year. Still, if you want to be on top of your taxes, you should start compiling your information in early January, even though they usually aren’t due until mid-April.
“You shouldn’t wait too long into the season to start compiling your taxes,” says Owen Martinetti, Co-Founder of Snoozy, a company known for their Delta 9 gummies. “As soon as the year ends, you should be thinking about compiling and filing your taxes.”
We all know that tax season is coming, so the earlier you gather your materials, the smoother it will go.
Preparation Is Key
You want to do as much as possible for yourself so that when tax season rolls around, you are not scrambling to get everything together.
“Many times, small business owners come to us when it’s too late. Tax laws change, but when they come to us in February and March, there’s not much, in some cases, we can do to help them because we didn’t communicate throughout the year,” says Dawn Brolin, CEO at Powerful Accounting Inc.
The best way to stay on top of your taxes is to be involved throughout the year. If you have a tax professional helping your business, communicate regularly throughout the year. That way, when tax season approaches, you are steps ahead of everyone else.
Ways To Make Your Business Ready for Tax Season
You can take plenty of steps throughout the year to ensure you are organized and prepared for this tax season.
1. Know Your Deadlines
There will be multiple deadlines that your business will need to know, and you need to prepare for both federal and state taxes. Each state has its own tax deadlines, so don’t forget to find that specific date. You may also need to pay an excise, property, sales, and franchise tax.
“Every business is different, so you can’t rely on a one-stop-shop of their specific tax information. Before entering a new business venture, make yourself aware of what kinds of taxes you will be responsible for paying. That way, when tax season comes around, you aren’t blindsided,” shares Victor Mathieux, Co-Founder and CEO of Miracle Brand.
Put these deadlines in a calendar, set reminders, and let whoever else is assisting with your taxes know. You don’t want them to sneak up on you, and you especially don’t want to miss them.
2. Compile Documents Ahead of Time
Keeping track of documents that will make your life easier during tax season is always a wise first step. Even if you don’t know if a record or document will be useful, save it anyway. You need proof of any claim you make on your tax documents. Therefore, saving receipts, invoices, bank statements, and more will be helpful come January.
“Check your records first. You should keep track of receipts and expenses throughout the year so you can just pull them out at tax time,” says Neil Anders, Vice President of Sales at Trusted Rate, Inc.
Having these files on hand will save you a lot of time. You don’t have to hunt down information when you’ve kept organized throughout the year.
3. Talk With a Professional
You aren’t expected to be a tax season genius just because you run a business. Other people have careers for this exact purpose. CPAs and tax professionals can help you navigate changing tax laws, ensure you have the documents needed, and that your business is on the right path for the new year.
“As your business grows, the need for outside help becomes even more prominent. Just like with outsourcing shipping, manufacturing, and designers to help run your business, you should hire a tax professional to ensure that your business is in a strong position for the upcoming year,” explains Roman Peysakhovich, CEO of Cleango, a company known for their commercial cleaning services.
Especially if you’re new to business, starting on the right foot with your taxes can set you up for success in the future. A tax professional makes the process much easier and can eliminate the stress tax season can bring.
4. Take Advantage of Tax Incentives
Whether you run your business or are a remote worker, you may be eligible for tax deductions to lower your tax liability. Applying for tax credits can boost your cash flow and save money for the next business season.
“Write-offs are a great way to save some extra money this tax season,” shares Andrew Meyer, CEO of Arbor. “From investment credits to job training funds, if you’re able to deduct expenses when tax season comes around, you will be effectively putting some money back into your business with little to no effort.”
Go over your options with your tax professional so you don’t miss out on saving money and taking full advantage of tax incentives.
5. Use Automated Software
People typically suggest saving a paper trail of all your receipts and bank statements over the last three years. This can help if the IRS has questions about your tax returns or audits your business. However, keeping paper on file is unnecessary when you can use automated software to compile your information.
“Keeping track of your inventory and payroll through an automated system helps keep track of all of your expenses and your revenue for the year. You can compile this information at the end of the year and give you a clear idea of what tax season will look like for your business,” says Cody Candee, Founder and CEO of Bounce.
The most beneficial part about having an automated system is that there are fewer user errors, which means the information you give your tax professional will be up-to-date and accurate.
6. Go Through Your Bank Statements
Going over your bank statements and ensuring they match your expenses is a tedious but necessary task. Even when using a bookkeeper, doing this task alone is important.
“If your bank statements don’t match up to your transactions, you could be in trouble. Usually, there is a way for you to fix these kinds of discrepancies before you need to submit any of your tax documentation. Ultimately, you won’t know until you go over it yourself,” explains Greg Hannley, Founder and CEO of Soba Texas.
You can never be too safe regarding documentation for your business. Keeping a meticulous eye on your transactions will prevent issues for you this tax season.
7. Set Aside Money
Assume you will be paying taxes on your business at the end of the year. One way to avoid being blindsided by how much you owe is to set money aside throughout the year.
“You should set aside 30 percent of your total income to cover what you’ll likely owe. When you don’t have any money set aside, your tax return might shock you. Choose a method for saving that works for you and stick to it,” says Jenny Herbison, VP of Marketing at Craft Docs, a company known for their helpful meeting notes template.
Whether you set aside 30 percent of each sale you make or compile each quarter’s total revenue and save quarterly, putting money aside will make this tax season less overbearing.
8. Don’t Avoid Setbacks
Missing documentation and discrepancies in your transactions can be a scary realization, but you can’t avoid handling them.
“There are ways to avoid penalties when scrambling to get your tax information together. File for an extension, talk with a tax professional, and make a plan to be more organized in the new year,” shares Marcus Hutsen, Business Development Manager of Patriot Coolers.
If you are going to miss a deadline or need extra help, you can file for extensions and bring on professionals to get your documentation together. Don’t hurt your business more by trying to handle it yourself — don’t be afraid to ask for help.
9. Prepare Your Payment Plan
How you decide to pay your taxes is up to you. You can pay in full with a short-term or long-term payment plan. The short-term will need to be paid within 120 days; the long-term is anything after the first 120 days.
“Depending on how much you’ve put aside for your taxes, you can select a payment plan for your business. If you can pay it all in full, you might save yourself the headache of having to do it later, but that isn’t always the case for everyone,” explains Scott Chaverri, CEO of Mito Red Light, a company that specializes in red light therapy.
However you decide to pay, the important thing is that it gets done. You don’t want the IRS to come after your business looking for money.
10. Plan for Growth in the New Year
The goal of every business is to grow every year that it’s functioning. With more money and revenue growth, you will be accountable for paying more taxes. While this doesn’t sound ideal, it does mean that your business is growing at a successful rate.
“When your goal is to make more money, you should take necessary precautions to prepare yourself for tax season. Putting more money aside and improving your preparation plan is the first step,” says Justin Soleimani, Co-Founder of Tumble.
With growth comes more money, opportunities, and information your business needs to succeed. This might be the perfect time to hire a tax professional so the next year of growth is well-managed and documented.
Make Tax Season a Breeze
Tax season can be intimidating, but it doesn’t have to be hard when you have a great team of advisors behind you. Take these necessary precautions so that you can continue to run your business successfully and without issue.
