Tax season can be an extremely nerve-wracking time, but that doesn’t have to be the case! Starting your tax preparation before the end of the year is just one way to prevent stress.
Below our financial experts share 5 tips to help small businesses survive tax season.
Step 1: Make Sure Your Books are in Order
Making sure your business transactions are recorded properly is one simple way to avoid unnecessary stress. It is recommended to record all business transactions in a general ledger so that information is easy to locate, well organized, and accessible. Lost transactions can cause even the most easy-going person to lose their cool.
You should also double-check to ensure that your books are balanced. Programs like QuickBooks should have updated your books automatically, but to be safe, you should review them to ensure that it has been updated accurately. If you are using double-entry accounting, the sum of all the credits should be equal to the sum of all debits. This goes hand in hand with making sure your books match your bank records.
Lastly, it is possible to miss deductions. Tentho highly recommends separating your personal and business expenses to help prevent headaches caused by having to sort through expenses when they are all mixed up in a single account.
Step 2: Sort Through Any Year-End Tax Moves That You Can Make
The IRS will allow you to deduct money that is still owed to you but cannot pay you back from your taxes. Keep a detailed account of these instances because the IRS will often make you prove it.
Minor business repairs can also be tax-deductible. If you plan on making minor overhauls for your business, it’s recommended you make them before December 31st.
If you’ve invested in a new line of business, and have not spent over $50,000, you should ask your accountant if you are able to make a deduction of $5,000.
Step 3: Set Aside Enough Money to Pay Your Taxes
Setting aside tax money, even if you do make estimated tax payments through the year, is another simple way to avoid unnecessary stress. If you aren’t sure how much money you will owe in taxes, Tentho recommends setting aside approximately 30% of your earnings, or 30% of each paycheck, to ensure you are covered. You should also keep your tax money in a separate bank account to ensure that you are on track.
Step 4: Stay Updated on Current Tax Reforms and State Specific Tax Laws
Tax cuts and reforms can impact the amount of taxes that you and your businesses owe. The Tax Cut and Jobs Act was passed and took effect in January of 2018.
Below are some key points on how it can affect you.
- C Corporations get a 21% flat income tax rate.
- Pass-through entities get a 20% tax deduction. This can be applied to your QBI (Qualified Business Income).
- You do not get write-offs for games of golf or other entertainment expenses.
Step 5: Preparing for the Future
Make sure all your books are up to date throughout the year. Be sure to continuously set aside money, whether it be per month, per week, or on a set payment plan. Every little bit counts and every dollar should have a job, especially around tax season.
If you are ready for a dedicated financial team to make your tax preparation painless in 2021 and beyond, schedule your free consultation with our financial experts.