Tax season won’t get underway for a few more months, but now’s the time to start planning ahead. Waiting until the last minute to get your records in order could easily increase your odds of making a critical error on your return, and it significantly elevates your stress level. To make tax time go as smoothly as possible, here are five simple things you can do now to prepare.
1. Clear out the Clutter
Trying to track down a single receipt in a mound of paperwork is just as frustrating as searching for a needle in a haystack. While it’s important that small-business owners maintain appropriate records, it helps to know where to draw the line. Routinely reviewing your documentation and weeding out any unnecessary files keeps the chaos at bay so it’s easier to find things when you need them.
If you want to ditch the paper records altogether, digitizing them is the way to go. In an effort to make record keeping easier for business owners, the IRS now accepts scanned copies of receipts as proof of your expenses. Shoeboxed is just one of many smartphone apps that offer a hassle-free way to scan and organize receipts, track your business mileage, and create expense reports.
2. Keep an Eye on the Calendar
Missing a tax-filing deadline can result in some potentially costly penalties, especially if you already owe money to Uncle Sam. Maintaining a calendar of key filing dates is a no-brainer, but it’s something that many small-business owners often fail to do. If you don’t have time to pencil in the deadlines in your datebook, the IRS offers an easy-to-use online tax calendar as well as a downloadable desktop version.
3. Track Your Deductible Expenses
Trying to add up all of your deductible expenses at the end of the year can be an exercise in frustration, so it makes sense to keep tabs on your spending as you go. Utilizing accounting software like QuickBooks is an excellent way to streamline the process.
The IRS has specific record-keeping requirements, and the type of records you’ll need to keep on hand usually depends on what the expense is for. If, for instance, you have a vehicle for business use you’ll want to keep a mileage log and gas receipts. Out-of-town travel must be documented with a receipt showing the name and location of your hotel, the dates of the stay, and the amount.
4. Don’t Mix Business and Pleasure
If you’ve been using the same bank account for business and personal expenses throughout the year, you may have a serious mess to untangle once tax time rolls around. Should you be targeted for an audit, whether you end up on the receiving end of a bigger tax bill may hinge on being able to prove your deductions. One of the wisest things you can do is establish separate accounts so there’s no confusion when you begin adding up your expenditures.
5. Get Professional Help
Once it’s time to file your taxes, you’ll have to decide whether to do it yourself or hand the responsibility over to a professional. The biggest advantage of letting someone else prepare your return is that it takes the burden of filing off your shoulders. Not only that, it can potentially minimize your tax liability if they’re able to find credits or deductions you may have overlooked.
If you need help all year long, investing in regular bookkeeping or accounting services is a logical step. Bookkeepers handle the basics like recording expenses, making sure invoices are being paid on time, and processing payroll. An accountant’s job tends to be a little more in-depth, since they also do things like preparing financial statements and analyzing your records for accuracy. Understanding how their roles differ can help you decide which one is right for you.