Written by Guest Writer: Lindsey Patterson
Let’s face it, tax season is nobody’s favorite time of the year. If you’re a small business owner, taxes probably stress you out and make you wish you could forget the whole thing. But it doesn’t have to be that way. Here are a few tips for making tax season a less stressful, more productive time for your small business.
1. Play the Long Game
Taxes aren’t just relevant once a year. Particularly for businesses, being prepared for tax season means working hard to keep everything tightened up and ready for when the time comes. There’s a lot you can do throughout the year so that when you’re filing taxes, you’ll be prepared and compliant with U.S. tax codes.
All the feeling of panic and stress you’re used to during tax season will be replaced by certainty and the knowledge that you’re doing everything right. Whatever you’re doing financially this next year, whether that’s taking out small business loans or making investments, you should be doing with tax season in mind.
2. Find An Accountant
The best gift you can give yourself as a small business owner is hiring a good accountant to handle your financials and make sure everything is in order. But the right accountant won’t just be a glorified bookkeeper. They’ll also be tracking income, expenses, monitoring your gross and net profits, and overall ensuring that you’re not running into financial issues.
If possible, work with an accountant as soon as you open your business so they have a full understanding of your financial situation. They should be working with you all year round, not just during tax season, so make sure whoever you hire for the job is prepared to get involved.
3. Keep Records
Businesses accumulate a lot of paper over time, and it might seem unnecessary to keep things once they become irrelevant. But as soon as you toss something, you’ll be looking everywhere for it during tax season. If you need some help with keeping track of everything, it’s time to bite the bullet and pay those QuickBooks fees. Neglecting to do good record keeping could result in you leaving a tax return uncollected, or worse, you could be audited. To avoid the biggest nightmare for business owners, keep your records thorough and up-to-date.
4. Understand Net vs. Gross Income
This is an issue many small business owners will run into because they simply don’t understand the true cost of their product. It may only cost $50 to manufacture the product, so you charge $75 and make a gross profit of $25. But invisible fees may very well exist that drop your actual income to $10, or no income at all. Neglecting to understand this issue and account for the difference between these kinds of income can put you in hot water, especially during tax season.
5. Separate Business and Personal
Small businesses often have a tough time separating business life from personal life. You might work on your business 24/7, and it can be difficult to discern your business expenses from your work expenses. But this is a distinction you’ll be expected to make during tax season, so it’s best to record these expenses as you make them. It’s much easier to see the difference at a glance if you’re using a different credit card and bank account for personal spending versus business spending.
6. Get Classified
Another small detail that could land you in hot water with the IRS is neglecting to classify your business correctly. You could also end up overpaying in taxes, which is always something to avoid. You can contact an attorney and discuss with your accountant to see how you should be classified and file next season.
Being financially responsible can seem like a lot of hard work, but by doing these small chores throughout the year, you’ll avoid having to panic during the next tax season.