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The first quarter marks the beginning of a critical period for companies – tax season. As you know, it can be a busy and stressful time of year for most businesses, regardless of their age, industry or profitability. Nobody wants surprises after filing, so it’s important to start preparing sooner rather than later.
By planning ahead, you’ll ensure your business is organized and ready to file on time. You may never enjoy tax season, but there are ways to make it as seamless as possible. Here are six steps to ensure your business is ready – by April 15th.
Related: These 6 Tax Tips Will Help Make Tax Season Easier For Your Business
1. Prepare throughout the year
Preparing for tax season starts long before you’re ready to file your tax return – you should prepare throughout the year. This starts with an accounting system where you can keep track of your finances.
There are numerous free and inexpensive options when it comes to accounting software, including QuickBooks, Xero, and ZohoBooks. The software is more comprehensive than anything you can do with an Excel spreadsheet, and most give you the option of collaborating with your accountant.
Additionally, companies must pay their quarterly tax obligations throughout the year. The exact archiving schedule varies depending on your business entity. Once you get on a schedule, you’ll likely find that paying your taxes as you go will make your life easier and help you avoid fines or penalties.
2. Make sure your books are balanced
You don’t want to get into tax trouble because of mistakes or missed transactions. Make sure all your business transactions are accurately recorded and categorized. Take the time to reconcile your accounts and make sure your finance software matches what your bank account says.
You should also make sure that you are separating your personal and business transactions. Otherwise, you will create a lot of frustration for yourself.
3. Gather your paperwork
Start gathering your paperwork at the beginning of the year. You will need to provide receipts for any deductions made if your business is audited. It’s a good idea to scan your receipts so you don’t have to worry about anything getting lost or damaged.
You will also need the following documentation to bring to your accountant:
If you have employees, you are required to file W-2s with the Social Security Administration by January 31st.
Related: 5 Steps to Tax Season Success
4. See what tax credits you qualify for
Next, you want to see what type of tax credits your business qualifies for. Tax deductions reduce your taxable income, while tax credits reduce your total tax bill. You can look for industry-specific tax credits or see if there are any state-specific tax credits you qualify for.
One of the most advantageous tax deductions for financing is Section 179, which allows you to write off almost the entire amount of an equipment purchase on your current year’s tax return.
The IRS provides information on its website about available tax credits and eligibility requirements. It’s a good idea to work with a tax professional to ensure your business actually qualifies for any credits you identify.
5. Work with an accountant
If you’re in the early stages of building your business, you might be tempted to file your taxes yourself to save money. However, short-term benefits often lead to long-term problems, and most entrepreneurs find the most benefit in working with an accountant.
Tax laws and regulations are constantly changing and it is impossible for the average business owner to keep up with these changes. Accountants understand all relevant tax laws and filing requirements and can help you minimize your tax liability.
Also, filing your taxes can be time-consuming and tedious, especially if you don’t know what you’re doing. Using an accountant will save you time and help you avoid costly mistakes. Plus, you’ll have peace of mind knowing your business taxes are filed accurately and on time.
The benefit of working with an accountant extends well beyond tax season; Your accountant can work with you throughout the year to develop strategies to minimize your tax burden.
Related: 3 Ways to Save Money on Taxes Most Entrepreneurs Miss
6. File Ahead If You Can
April 15th is commonly considered Tax Day, but the exact filing deadline depends on your business entity. Sole proprietors, single member LLCs, and corporations that ended their year on December 31st must file taxes by April 15th.
But if you’re a partnership, multi-member LLC, or S-Corp filing Form 1120-S, you must file by March 15th. File idea early if you can.
By filing early, you’ll avoid processing delays with the IRS and save yourself the stress of trying to file at the last minute. If you wait too long to start the process, you may have difficulty getting in touch with your accountant.
Scheduling an appointment with your tax professional in advance ensures you can file on time. If not, you may have to apply for an extension.