Everyone knows tax season is stressful for tax preparers, but in my experience, it is also stressful for many small business owners. Let me ask you this, as a small business own what is your tax season experience like?
Is it a mad scramble to gather information for your taxes at the last minute, hoping everything is there? Are you inundated with confusing information requests from your tax preparer? Are you and your tax preparer frustrated by the process overall?
If you answer Yes to any of these questions, your small business finances are likely the problem and you could benefit from a tune-up. As with any tune-up, there is no time like the present to get started!
Below are 4 things you can address right now to make next year’s tax season smooth sailing!
Organize your financial records. Tax preparers may get frustrated with small business owners who have disorganized or incomplete records, which can make it difficult to accurately prepare their tax returns. There are several ways to tackle this problem, but often it is helpful to get a professional objective opinion on how best to proceed. When it comes down to it, you need a good system, process and commitment to drive consistent organization in your finances.
Keep accurate accounting. Failing to adequately record income and expenses can result in underreporting of income, overreporting of expenses, and potential IRS audits. And, it happens all the time. Don’t let this be you. If your books are a mess, you’ll need help cleaning things up you’ll likely need ongoing help too. Hiring a qualified, experienced bookkeeper is challenging right now. Consider an outsourced bookkeeping or accounting firm. Whichever direction you go, make accurate accounting a focus. The benefits far outweigh tax consequences. Good financial data provides great value in maintaining and growing your business!
Separate personal transactions from business. Small business owners may use the same bank account or credit card for both personal and business expenses, making it difficult to accurately track deductible business expenses for tax purposes. Further, how can you measure your business performance accurately when your finances are commingled? And, you don’t want to know the legal repercussions…it’s just bad. Ready to fix this one? It’s simple. Open a separate bank account…for your business or you personally. It doesn’t matter. Use the personal one for personal income and expenses; the business one for business income and expenses. Not sure when something is business or personal? See the next item on the list…
Communicate regularly. Tax preparers can find it frustrating when small business owners fail to communicate clearly or timely on decisions and changes made throughout the year. It can lead to misunderstandings and errors on your taxes. This suggestion is one that is simple but not easy to apply. The reason it isn’t easy is because you’ll be fighting years of built-in inertia where the tax consequence of actions doesn’t cross your mind. To break the inertia, consider giving your tax preparer a call quarterly to break the ice. You’ll find most tax preparers know the questions to ask and pretty quickly, your relationship with them improves as does your annual tax preparation. No surprises are good surprises!
In conclusion, taking the time to address these four items can make a significant difference in your tax season experience as a small business owner. By organizing your financial records, keeping accurate accounting, separating personal and business transactions, and communicating regularly with your tax preparer, you can streamline the tax preparation process and avoid unnecessary stress and frustration. Remember, small business finances require consistent attention and there is no better time than now to get started. Make next year’s tax season a breeze by implementing these steps and staying on top of your finances throughout the year.
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