Tax season can be a stressful and confusing time of year for small business owners across the country. Especially for new startups that are filing for the first time. According to a study conducted by SCORE, forty percent of business owners listed bookkeeping and tax preparation as the worst part of being a small business owner.
However, with proper consideration, tax frustration can be greatly reduced, if not avoided entirely. A little organization and preparation can go a long way. Not only will it provide peace of mind, but it can save time and money. By following these simple tips, your startup can cruise through tax season successfully.
Organize Ahead of Time
Preparing to file taxes should be a year-long process. Expenses or deductions that your business plans to claim should be verifiable through recordkeeping. This verification requires keeping up with every receipt and invoice you receive throughout the year.
Records of asset purchases will not only help accurately calculate depreciation, it will also help you maximize allowable deductions. This documentation can be kept in a physical file or stored digitally. There are several apps and programs available online that allow you to upload and organize receipts, eliminating the need for physical storage or unnecessary paperwork. Some accounting software also offers the option to attach files directly within the software, making it easier to organize and store all your documents.
Keeping employee and contractor tax information readily available will make issuing 1099s and W2s much easier. Practicing organization will not only better prepare you for filing taxes but also help in the case of an IRS audit.
Maintain Accurate Financial Statements
Regularly updated financial statements can be beneficial for many reasons other than tax planning and preparation. Not only can they show the health of your business, but financial statements can also provide information on profit margins, liquidity, and operating revenue. Accurate financial statements are incredible resources to provide your tax preparer and can streamline the tax filing process.
Use Accounting Software for Detailed Recordkeeping
While new startups may be focused on growing their business, it is also a good idea to establish diligent bookkeeping practices from the start. There is no shortage of options for accounting software.
Many accounting software providers offer options that cater to your budget, company style, or industry. The right software can make a difference when it comes to financial management. Many options even assist in other areas of your business like inventory management and automated billing.
When using an accounting software to track your expenses, it is important to be as detailed as possible. Entering transactions on a daily or weekly basis can help you correctly categorize transactions while the information is fresh in your mind. Reconciling bank or credit card accounts each month, as your statements arrive, will keep records up-to-date.
Due diligence with recordkeeping allows you to run accurate financial statements, catch real-time discrepancies between your accounting system and bank records, and will save you time and money during tax season.
It is crucial to track business and personal expenditures separately. This is a common mistake many startups, and small businesses face. Often, small business owners spend the majority of their time and money on their new venture, resulting in the merging of accounts. By keeping separate accounts for business and personal use and carefully tracking expenses, unnecessary confusion can be avoided. Separate financial records are also a requirement for certain types of businesses such as LLCs and corporations.
Do Your Homework
When it comes to financial management, the more informed a business owner is, the better. From the very beginning, it is important to ensure you have formed the right type of entity for your business type and tax filing status. Conducting research of federal and state-specific tax responsibilities such as payroll tax, sales tax, or corporate taxes can help reduce any unpleasant surprises during tax season. Staying informed about important dates and deadlines will eliminate unneeded stress and ensures that paperwork is ready when needed.
Federal and state-operated websites exist that can provide excellent resources for startups. For example, IRS.gov offers a guide on deducting business expenses. The Florida Department of Revenue website offers a start-up kit for new business owners and provides a detailed listing of tax credits available to Florida-based startups.
Many accounting software providers have resources available to assist business owners not only with general bookkeeping questions, but also provide services such as training, webinars, live support, or information on tax forms that apply to your business.
Hire an Accounting Professional
Regardless of how well you maintain your financial records and how prepared you feel for tax season, it is always a good idea to have a tax professional review your finances before submitting them for filing. Many Certified Public Accountants (CPAs) have first-hand knowledge of the intricacies involved with tax planning and preparing for startups.
They may be able to identify deductions that you may have been missed using an online software. Accounting professionals also keep a close watch on any changes in tax laws that could affect how you do business. By using an expert to file your taxes, you can be confident that your taxes are being filed correctly and on time, avoiding costly penalties or mistakes.
Entrepreneurs running startups often have an overwhelming amount of work on their plate. However, planning for tax season is extremely important and not something that should be ignored.
Tax preparation can be completed throughout the year by keeping meticulous records and implementing good financial management. Consulting with an accounting expert can help business owners make it through tax season successfully and with less stress.
If you’re looking for a Tampa tax professional, contact the seasoned tax team at Rivero, Gordimer and Company.