Guest Post Julie Morris – www.JulieMorris.org
A mention of taxes results in a groan from most adults, but few groan louder than small business owners. Often working without the benefit of an in-house accounting department, many small business owners are left to sort out the complexities of tax prep alone. Of course, smart business owners at least outsource the preparation of their actual tax returns, but there’s much work that goes into preparing for tax season long before the looming April 15th deadline.
- If you don’t have an accountant, get one.
Professional accounting help costs money, but you’ll save hours of time and possibly hundreds to thousands of dollars in taxes. An accountant or tax prep professional can help you maximize your tax deductions and take advantage of all the credits you qualify for.
- Go digital.
Stop letting receipts accumulate in piles, folders, and shoeboxes. It may seem easier to simply save your receipts throughout the year, but using an accounting software solution such as FreshBooks or QuickBooks will make it easy to monitor your cash flow over time and quickly generate profit and loss statements and other reports when you need them. Plus, you don’t have to worry about losing receipts and missing out on deductions when you store everything digitally. Consider tools that streamline the filing process such as W-2 and 1099 software.
- Document everything, immediately after it happens.
Once you’ve decided on a software solution for tracking your income and expenses, get into the habit of entering all expenses, payments, and other transactions immediately as they occur. Again, this habit will save you many hours – and many headaches – next tax season when you don’t have to look up your transactions, sort through piles of receipts, and enter everything at one time.
- Maximize retirement savings contributions.
Reducing your taxable income is one of the best ways to reduce your tax bill and start building a nest egg for your future at the same time. In most cases, you can contribute thousands of dollars to a retirement savings account such as a 401(k) or an IRA, deferring the payment of taxes on this income until you remove those funds. The contribution limits are subject to change each year and begin to be phased out at higher income levels, so check the IRS website to find out where you stand.
- Take advantage of other savings options and donations to charitable causes.
Other options for reducing taxable income include contributions to a qualified college tuition savings plan (such as a state-sponsored 529 college savings plan) or a health savings account (HSA). Finally, keep track of all the contributions you make to charitable causes, including the expenses you incur while doing these good deeds. If you bake cookies for a bake sale raising funds for a qualified charity, for instance, you can deduct the cost of the ingredients as a charitable contribution.
- Take a second look at last year’s tax returns.
Looking over your past years’ tax returns will help you remember questions from previous years that you didn’t have time to ask prior to filing those returns, which can help you make better decisions when it’s time to file again. If you’re questioning whether you missed out on deductions or paid too much in taxes, you can always have an accounting professional review prior returns for a second opinion, as well. You can file amendments to tax returns for up to three years.
Tax season isn’t something most people look forward to – even accountants, who often find themselves pulling all-nighters to help clients file last-minute returns – but it’s a necessary evil. By starting to plan today (and all year long) for next tax season, you can take the stress out of filing.