Few phrases can make a business owner feel dread like the words “tax time.”
Tax time is often a stressful season that leaves business owners scrambling to find documents, sifting through a pile of receipts, and working late to get their books caught up and in order.
But tax time doesn’t have to be filled with stress and anxiety.
If you take a few steps right now, you can prevent the overwhelm that often comes along with tax time. Here are a few steps to get your books in order so you are ready to hand your information over to your tax accountant while feeling:
- Less stressed and overwhelmed
- More informed and prepared
- Ready to produce an accurate tax return that offers the best benefits for your business
Instead of waiting until the last minute, take these steps now to avoid tax stress.
Psst… If you’d rather have one step to get ready for tax season, jump to number seven.
How to Avoid Tax Stress
Make tax season less stressful this year — and every year — by following these steps.
#1) Mark the calendar.
There are two important dates as it relates to your taxes. Mark these dates on your calendar, and count back three or four months to schedule a reminder to prepare for these dates.
- The first day of the year (January 1st). When the clock strikes midnight on January 1st and a new year begins, you miss many opportunities to make changes to your business that can impact your taxes. If you want to make business decisions that affect your tax liability, you need to do it before the year ends.
- The day your taxes are due (March 15 or April 15). Partnership and S-corporation tax returns are due on March 15. Individual, sole proprietor, and C-corporation tax returns are due on April 15. If you don’t think you can file on time, you must submit a tax extension to extend the due date or run the risk of facing fines and fees.
The key to good tax planning is not waiting for these days to approach to start working on your taxes. The earlier you start planning, the more time you have to make business changes to impact your tax liability. And, by prepping for your taxes all year, you will have less work to do when taxes are due.
Related: Add These Important Tax Deadlines to Your 2023 Calendar
#2) Get your hands on last year’s tax return.
One of the best resources for tax season is your previous return. A previous return can provide valuable information to both you and the accountant preparing your return. Ensure you have easy access to last year’s return (and, if possible, the last three years of returns).
#3) Record all of your income.
One of the reasons why business owners are left with a lot of work to do at tax time (and the stress that comes with it) is because they haven’t kept their books up to date throughout the year.
If you fall into this category, go through your books to make sure all business income is entered. (Better yet, create a plan to enter income and reconcile bank accounts throughout the year so you aren’t left with a big pile of work at the end of the year.)
In addition to business income, separately document any additional personal income such as: rental real estate, royalties, stock options, gambling winnings, cancellation of debt, and taxable Health Savings Account distribution.
#4) Record all of your expenses.
The same goes for expenses. To file your taxes, you must have all of your expenses tracked and categorized. Expenses are tied to tax deductions. To get deductions (which lowers your taxable income), you must have documentation for all of your business expenses.
Reconcile your bank account and include all business expenses in your books.
Also, separately gather information for personal expenses such as: payment for alimony and tuition, IRA contributions, Medical Savings Account (MSA) contributions, self-employed health insurance payment records, mortgage interest, private mortgage insurance (PMI), charity donations, and medical and dental expenses.
Related: These 6 Small Business Tax Deductions Are Overlooked Too Often
#5) Separate your business and personal expenses.
As you go through the process of reconciling and entering expenses, remember to categorize personal and business expenses separately. One of the biggest small business tax mistakes business owners make is mixing their business and personal expenses.
#6) Gather all important documents.
A large portion of tax preparation is collecting documents. As tax time nears, you will receive many documents that must be included in your return. You may need to also prepare or procure other documents yourself (such as a profit and loss statement, balance sheet, etc.).
When you meet with your tax accountant, gather the following relevant documentation.
For your business taxes:
- Profit and loss statements
- Balance sheet
- Bank statements
- W-2s and W-3 wage and tax statements
- Non-employee compensation (1099s and 1096)
- Payroll records
- State and local tax forms
- Statements of changes in equity
For personal (and your spouse if filing together) taxes:
- W-2 income forms
- 1099-C forms for cancellation of debt
- 1099-G forms for state or local tax refunds
- 1099-NEC for any independent contract work
- 1099-R for IRA/pension distributions
- 1099-S forms for income from sales of a property
- 1099-INT, -DIV, -B, or K-1s for investment or interest income
- SSA-1099 for Social Security benefits received
- Forms 6252 for principal and interest collected during the year
- Form 1095-A for self-paid health insurance
- Form 5498 for individual retirement account (IRA) contributions
This list is not exhaustive. To plan ahead, talk to your tax accountant before taxes are due and ask for a full list of the documents they think you will need based on your business and personal financial situation.
#7) Hire a bookkeeper.
If you’d rather skip all of the other steps in the post, you can do just this one thing.
Instead of taking on the tasks of tax prep, hire a bookkeeper to manage it for you.
When you work with a bookkeeper, they keep track of all of your records — so you don’t have to. A bookkeeper ensures all of your financial recordings are accurate, up-to-date, and ready to be easily entered into your tax return.
Monthly bookkeeping prevents you from spending time scrambling to get your books together. Everything will already be done for you — and you don’t even need a full-time employee to accomplish this.
A part-time, outsourced bookkeeper is all you need to keep your books in order and ready for tax time.
Even better, if you work with a bookkeeping partner who also offers tax preparation services, you will be one step closer to filing. Your partner will have most of what they need to file your business taxes — leaving you with way more time and way less stress.
Related: Outsourced Bookkeeping Benefits: 7 Ways to Save Time & Money
Get Ready for Tax Season. Get Your Books in Order Today.
The key to a stress-free tax season is good bookkeeping.
Don’t leave yourself scrambling at tax time.
Work with a bookkeeping partner now so you have everything you need when tax time rolls in.
See how outsourced bookkeeping with CFO2U can give you the support to manage your books year-round so tax time is a breeze. Download our free guide to see how a bookkeeping partner can support your business.
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