Business Finances

Preparing Your Business for Tax Season, It’s More Than a Yearly Event

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    • FNBO

      Commercial Banking
      Feb 17 2022

Preparing Your Business for Tax Season, It’s More Than a Yearly Event

While tax season can feel like crunch time for your business, there is plenty that you can do to get ready for tax time in advance. Below are some tips to help you get prepared to file, hopefully making tax season a little less stressful for your business.

        1. Mind Your Financial Management

Establishing regular bookkeeping practices is one of the most important things you can do to simplify the tax filing process. By entering financial transactions into your general ledger as they occur, you reduce the risk of missing an important deduction or understating your revenue, something that might lead to an audit down the line.

As you record transactions, it’s also important that you are taking care to accurately and consistently categorize expenditures. For instance, you wouldn’t want to record a bill from a company designing your new website as an investment in your business one month and a marketing expense the next. 

Another way to boost the accuracy of your accounting is to separate your business and personal checking accounts. With a dedicated business account, you won’t have to worry about inadvertently categorizing a personal expense or income as one that belongs to your company. For the same reason, it’s also a good idea to hold a dedicated credit card for business expenditures instead of using your personal credit card.

By keeping your financial records accurate, consistent, and up to date, you make it easier to generate the end-of-year profit and loss statements you will need for filing your taxes. Fortunately, adopting a good accounting software can significantly ease the burden of keeping accurate records. Not only does a good software package help you appropriately categorize expenses, but you can easily attach the receipts, invoices and other records necessary to prove the validity of the expense.

        2. Make Regular Tax Payments

According to the IRS, businesses must pay taxes as income earned throughout the year. Typically, these payments are made quarterly.

This applies to sole proprietors, partners, and S corporation shareholders that make more than $1,000 when their return is filed. The same holds true for corporations, but the annual earning threshold is lowered to $500.

Generally speaking, you should aim to pay at least 90% of what you will owe for the year by the final quarter filing date. Failing to pay on time or to pay enough in estimated taxes could cost you in penalties or make your business more likely to be audited.

But there is another benefit to paying timely and accurate estimated payments. You’ll also make it faster and simpler for your accountant to file an end-of-year tax return.

        3. How to Handle Gaps in Your Records

While there is no substitute for regular financial record keeping, there is also no reason to panic if you’ve fallen behind come tax season. A first step to addressing gaps in your financial records is to compile all of your bank and credit card statements to help identify your expenditures. You’ll also want to pull together invoices from vendors and the like.

The most important tip here is to get an early start. Don’t wait until the beginning of April to begin catching up, when the filing deadline is just around the corner.

To ease the burden of manually sifting through months of records, consider hiring a bookkeeper. Many work part-time, particularly during tax season, and given their expertise in this area, can help organize your business finances faster than you could on your own.

If regular bookkeeping is a challenge throughout the year, you may even want to consider keeping a bookkeeper on staff as either an employee or contracted hire. A financial professional will help to ensure your business is keeping accurate records over the course of the year, including correctly categorizing your expenses. Doing so will significantly reduce the frustration and burden associated with tax season for your business while providing you with a more accurate picture of your company’s financial health.

        4. Find the Right Accounting Professional

One of the best tips to make tax season easier is to find the right accounting professional. Fortunately, there is an accountant for every budget, so the best advice is to find one early on, preferably before you start your business. 

Then, engage with them often. Include them in discussions around business decisions, such as hiring additional staff or buying new equipment. Often, your accountant can advise you on tax strategies or help you avoid tax complications down the road.

Depending on your business, you may also run into industry-specific regulations. An accountant that specializes in your industry will understand the ins and outs of your business and know the correct approaches for handling the special circumstances you face.

Most of all, recognize that it’s the little decisions that you make throughout the year that could significantly impact your taxes. Regularly attending to bookkeeping tasks and consistent communication with your accountant will help keep you on track for quick and accurate filing come year end.

We hope these tips help you and your business prepare for tax season long before Tax Day. And as always, if you have any questions about your taxes, reach out to your accountant for expert help.

The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.