Tax season can be a stressful time for business owners.. and even more so if you don’t have any help to pull all of your information together. Probably the most important point is to make sure you have all your ‘ducks in a row’ as early in the year as possible.
There are many things you should keep in mind this year, as the pandemic has posed many challenges for some. Things such as PPP loans that were offered or certain loses you incurred, all are specifics to give thought to.
No business owner is obviously particularly thrilled about tax season. It’s just an unfortunate part of the job that has to get done one way or another, hopefully with the help of an accountant, if you can afford one.
We find it can be helpful to have a light list of points to remember during tax season. So let’s get into a few that may make the process a little less overwhelming.
Get Your Records in Order
The first thing you’ll want to do is gather all the documentation and records that you can before you even do your taxes, so that you’re not scrambling to find them when you need them. This refers to not only the standard info, but every piece that you will conceivably need for tax preparation.
The Paycheck Protection Program (PPP) was a critical lifeline to help keep businesses afloat during the coronavirus pandemic. If you were one of the fortunate people to receive a loan, you may still be a bit fuzzy on the details. I think we all are, as early info was quite vague. There’s a great article here that helps breakdown what business owners need to know.
It’s imperative that you double-check potential deductions related to COVID as well as any potential tax implications due to PPP loans.
Get it all together beforehand. Prior tax returns, receipts, bills, invoices, budgets, expenses, business credit card history, payroll, and anything else you can think of—all of that will help to expedite the process.
Get it Done as Early as Possible
Again, you really don’t want to get stuck preparing your business taxes right before deadline because there’s a lot to do and not only will it add unnecessary stress, but it may cause a problem simply because there will be a lot of other people doing it at the same time.
That could mean that the accountant you’re using is already extremely busy. If you are using an accountant or other tax preparer, they will most likely be contacting you as a reminder within plenty of time, but if not, start thinking about it at the beginning of the year and get it done as early in the year as you can.
It’s just not a good practice to do it later on because among other things, there are almost always surprises that come up which you will need more time to resolve. Avoid the added stress and get it done sooner rather than later.
Use an Accountant to Prepare Your Taxes
Most businesses will have an accountant or other professional who handles tax preparation to take care of it for them, but of course some owners decide not to use an outside professional for one reason or another. If you decide to self-prepare your business taxes for whatever reason—no extra money to pay an accountant, or you’re actually qualified to do it—it won’t be easy.
For one thing, self-preparing your taxes takes a lot of time you probably don’t have, and if you’re not fully qualified, you will likely make costly mistakes. If at all possible, you should definitely hire an accountant to do it. If you’re not accustomed to using an accountant and are hiring one for the first time, don’t hire just anyone out of desperation or frustration.
Be sure to check their references, experience, client reviews, and referrals. Furthermore, it’s usually a good idea to use one that is recommended by a friend, colleague, or family member whom you trust; however, it’s still important to vet them in any case.
Find Out if an Audit is Possible
If you’ve never been audited before, know that it can be an invasive and stressful experience, one that you won’t want to repeat if it does happen. The good news is that you don’t have to just hope that it doesn’t happen; a good accountant will be able to look at your past and current fiscal situation, and tell you whether or not you could potentially be audited by the government.
They know what to look for because they can see what kinds of things may trigger an audit from the IRS. This is why it’s incredibly useful to have a professional working for you, as they deal with it every day, while as a layperson, you probably have no idea what factors can put you at risk of an IRS audit.
Prepare for the Worst
Since most of us tend to deny the fact that anything will go wrong in any situation, this is why you should make it a conscious exercise to remind yourself that problems are possible. Do your absolute best to get your business ready for anything that the IRS can throw at you, such as an audit, for example.
Not to say that it will happen, but if you were to actually be audited, it’s a very good idea to have all your records in order. It’s not only just good practice during tax season, but all year long as you’re doing normal business.
Rather than assuming it will all go perfectly, you’re much better off assuming that issues will arise and setting aside additional time to deal with those issues during tax time. Work with your accountant to understand what you will need to have prepared for the IRS, in the event of an audit, to make the process go as smoothly as possible.
Update All of Your Accounts
Something that you can easily overlook are out-of-date records and accounts. For example, all the information in your bank accounts and other business accounts, as well as company records for partners and employees should all be updated. Any standing or closed accounts for customers and clients need to be in good order, too. You don’t want to have any erroneous or missing information in customer accounts.
As a small business, it’s very likely that you’re extremely busy with running everything else and, without the extra staff to keep your accounts up to spec, you can easily let information become outdated because it’s not immediately relevant to you. Take some time early in the year to make sure all of your databases, records, and accounts are all up-to-date before you start doing your taxes.
So, these are just a few tips for managing your business taxes this year to be sure that it goes off without a hitch. It’s not like you are unfamiliar with tax season at this point, but keep in mind that it may not be as simple as last year.
There may be surprises, which is why it’s important to start the process as early as you can, and if you have the means, to hire an accountant to assist. Just having a professional around to get through it can make all the difference in the world.