5 Tips To Get Your Small Business Ready For Tax Season

5 Tips To Get Your Small Business Ready For Tax Season

Small businesses usually have a unique context surrounding tax season: while they’re often making money, they haven’t yet hired an official bookkeeper which can mean that financial records are usually scattered or inconsistent. This can make tax season a nightmare, and the small business may even end up paying more than it should. This can be avoided with a little bit of proactive preparation -- and by bringing on a bookkeeper. Here are a couple tips to get you started in the right direction.

Organize your records by category.

Typically, this might involve:

  • Payroll

  • Vendors & contractors

  • Equipment expenses

  • Business travel

  • Utilities

  • Office supplies

  • Marketing costs

  • Income from all sources (Break into sub-categories if necessary.)

Also, check your personal credit cards, and make sure there aren’t business expenses there. If you find any, add them to the list you’ve compiled.

Consider outsourcing payroll.

Most small businesses outsource their payrolls. Here’s why: statistics show that 40% of small businesses incur an average of $845 per year in IRS penalties related to payroll. The IRS and most states require that you file payroll reports and any remaining quarterly payments.

Open the lines of communication.

Make sure your professional bookkeeper is working from the same documents and records you’re referencing. Implement a financial software like QuickBooks Online to improve recordkeeping. If everyone is working off the same documents, whether that’s as simple as Google Drive or within a financial software, like QuickBooks, financial records won’t end up isolated.

Involve technology.

Technology has its pros and cons. In terms of small businesses and tax season, it’s mostly pros. You can use various types of accounting software (a bookkeeper can even recommend preferred ones) and sites like Avalara and TaxJar to help with sales tax calculation (a large issue for many small businesses). Talk to peers about different tech solutions they’ve found. The end goal is to spend more time on your business development and less time on tax-related issues.

Rack up those deductions.

As for as deductions go, there are some obvious ones (travel, marketing, equipment) and some less-obvious ones (lawn service, bad debts, and interest). But there are a host of potential deductions for small businesses -- so work with a bookkeeper, and make sure you know them. Then, make sure you have the records to prove you qualify.

The whole ecosystem of tax season comes back to preparation and organization. Outsourcing some of the core, number-crunching functions, like bookkeeping, can be beneficial. Don’t spend this winter digging through shoe boxes searching for receipts to prove you qualify for a tax break. Do right by your business, and keep processes and systems properly organized -- then, tax season will feel like less of a hassle.