Sometimes tax preparation can be challenging for some business owners. One costly mistake that many business owners commit is to wait until the last minute and start scrambling over files to find the necessary information. Ideally, the process should be a year-round exercise to avoid inconveniences like additional tax preparation costs or missed deadlines. So, to reduce these tax burdens, ensure you keep accurate documentation throughout the year. Here are some crucial steps to help you organize and prepare for tax season.
Enhance Business Compliance with All Tax Documentation
Complying with the necessary tax filing, such as payroll, can ensure a smooth tax preparation process. You must correctly file the necessary 941s, and 940 forms then ensure the W – 2 is issued. Further, if you work with independent contractors, create a 1099 form and ensure its appropriately completed and delivered to the Internal Revenue Service (IRS) for contractors who were paid over $600 in the year. You can also consider contacting the independent contractors to validate the information you have.
Also, when filing taxes, you may be needed to produce financial statements such as profit and loss, balance sheet, and cash flow to the preparer. Other additional information that may be required include withdrawals, owner's contribution, and fixed asset statements. And if there is a significant change in figures as compared to previous years, the preparer may need an explanation for the sudden change too. Providing timely tax information minimizes your tax filing burden and also helps you avoid additional tax preparation costs.
Organize Your Documentation
With so many responsibilities like improving customer experience, streamlining business operations, and meeting market competition, business owners may overlook the tax preparation process. Plus, the difficulties of keeping accurate accounting and tax documentation. But remember that ensuring proper documentation of all business deductions and expenses can help you minimize the tax filing workload. Remember the earlier you make your information accurate, the smoother the process becomes. You can start by scanning receipts and other necessary papers. Ensure you collect all the receipts and invoices for services offered to your business such as web hosting, online shopping, domain name, and other cloud-based services like dropbox.
Additionally, reviewing the previous year’s tax return can help determine if there were some forgotten expenses. Also, you may need to check on various business accounts like bank statements and credit cards. Gather any other expense receipts that were exclusively used for business purposes such as paid membership, seminars, and conferences or for professional services the business received.
Keep A Regular Track of Business Transactions
One way to keep proper documentation is to keep track of the accounting system. Business owners must check and monitor business transactions such as expenses and income all year long. You can do this by running a bank reconciliation every month. And if the accounts reconciliation match, then you'll know in advance that every transaction has been accounted for. But if they don't reconcile, then you should find the misrepresented transactions before the end of the year.
Another excellent way to monitor your transactions is by allowing your preparer to conduct a quarterly check on the business's financial accounts. The regular checks can ensure the business transactions are in order, and if a problem arises then, you'll be able to fix it at an earlier stage. And in case of any concern about categorizing specific transactions occur, you should record it and share it with your tax filing preparer. This process can help you note any crucial transaction that has been inappropriately categorized. Additionally, regular checks can help pick any unusual transaction and establish how it happened. Hence, tracking business transactions are beneficial to keep accurate documentation throughout the year.
Related post: Guide How To File A Tax-return Season.
Preparing for tax season can be an easy process, but only if you conduct the necessary preparations. But if you wait till the year ends, you may not like the process at all. So, you should put in place an effective filing system that can help you keep track of your business all year long. The steps mentioned above can help you better prepare for tax season.
