How can business owners get organized for tax time?

Tax season seems to catch small business owners off guard each year. After getting through one challenging year, a business owner may vow to be more organized the following year. But it just doesn’t seem to happen. Instead, business activities take most of your attention, and you find yourself back in the same predicament the following tax season.

So instead of drowning in fear of the tax deadline, why not have a more proactive approach to tax organization for small business now?

Therefore, when the next tax season rolls around, you can face your tax consultant confidently, knowing that you have stayed on top of your obligations all year long.

Here’s how to get ready for tax preparation.

See Things from Your Tax Preparer’s Point of View

There is nothing more annoying than someone putting a huge pile of paperwork on your desk and asking you to organize it. So why would you do it to your tax preparer? When getting ready for tax season, try to see things from your tax preparer’s p.o.v. They are overwhelmed with all types of issues this time of the year. So, adding your unorganized pile of stuff to the mix will only create more delays for them and you. Instead, try to organize all your expenses and earnings so that they can easily plug in the information and determine whether you owe or are receiving a tax refund.

Digitize Receipts

Receipts can create a lot of clutter for you. Not only this, but some receipts may also not retain the ink on them as they should. As a result, you could have spent thousands of dollars on something but can barely see it on the receipt because the ink has mostly rubbed off. Instead of letting essential receipts become indecipherable, it’s a good idea to scan them into an app or a computer file to retrieve them later.

Don’t Mix Personal and Business Purchases

Your company’s organization status as an LLC or corporation can protect you from personal responsibility if your company is sued for something. However, if you are not doing a great job of keeping business and personal finances separate, this could make you personally responsible for financial issues associated with your business. To avoid this, it is a good idea to keep a personal business bank account and credit cards and use them only for business-related expenses. This also makes it easier for your tax preparer during tax season. They can review all your business bank statements and credit transactions without separating them from personal ones.

Stay Organized Each Month Rather Than Waiting Until Tax Season

A lot of the stress associated with preparing for tax season comes from waiting to the last minute to gather a boatload of essential documents. Instead of going on a wild goose chase each tax season looking for crucial documents, it’s a good idea to create a file and add those critical documents to it. This can be a hard file or one that you digitize and scan into your computer.

Taking time each month throughout the year to add to this file will keep you from becoming stressed during tax season. In addition, having this information sorted will make your tax preparer proud of you!

Take Advantage of All Deductions You Qualify For

There are so many small business owners who aren’t aware that there are certain deductions to reduce their tax liability. So, they end up leaving money on the table that Uncle Sam owes them. Sometimes the rules change concerning these deductions. Therefore, it is a good idea to have a tax professional who knows the tax rules for the year to let you know what you can and can’t deduct. This will allow you to keep accurate records while minimizing what you owe.

Set Aside a Payment Fund

Sometimes no matter how much expensing you add to your taxes, you will still owe the IRS. Perhaps your small business brought in a lot of revenue this year, which is excellent. What’s not great is being hit with a huge payment when you don’t have the money to pay. Instead of worrying about how to come up with the money to pay your taxes, try to anticipate how much you may have to owe ahead of time and set it aside. As a rule of thumb, you should put aside 30 percent of your business income.

Staying on top of things can help you prevent last-minute panic and minimize filing for an extension. When you are organized, you can quickly provide your tax professional with the data they need.

Make this year the year you decide to get your taxes organized for your business, and you’ll be happy you did in the new tax year.