The holiday season is full of joy, merriment and good cheer. Unfortunately, the end of the year is also a reminder that tax time is near. While the hustle and bustle of the holidays are upon us, small business owners should use any downtime they have to prepare for tax season.
Starting early is the key to avoiding procrastination when it comes to your taxes. You can get your small issues sorted out now before they become catastrophes.
Make a commitment to get your taxes sorted early this year, especially if you’ve always scrambled at the last minute to file your taxes. Here’s how to do it simply and painlessly.
Step 1: Gather Your Documents.
One of the first things you can do is create a list of your tax-deductible expenses. A spreadsheet that shows the expense, category and amount should be sufficient. Having receipts for every purchase is also helpful, especially if you ever get audited. You should also have records for the taxes you’ve paid throughout the year, if you have to file quarterly.
Keeping this spreadsheet and any related documents, such as PDF receipts, in one cloud-based folder will ensure that your documents are easily accessible.
Set aside 15-30 minutes a day to gather this information. By breaking it up into smaller chunks, you’ll be able to keep this manageable, and you will be less likely to procrastinate when it comes to working on your taxes.
Step 2: Make Sure Your Clients Have Your W9 and Current Mailing Address.
One of the biggest reasons that people receive tax information late is that their client has an incorrect mailing address. Even if you have mail forwarding set up from a previous address, it can take weeks for the post office to forward the documents to your new address.
Reach out to all your clients and send them your correct information, including a W9. This might seem like overkill if you did it previously, but it always pays to be cautious when it comes to your taxes.
Step 3: Find a Reputable Accountant.
Small business owners have enough to worry about on a daily business, and taxes shouldn’t be one of their problems. A small business tax accountant can help you file your taxes, answer any questions and assure you that everything’s been done correctly.
Worried about paying for an accountant if you’ve previously used software to get the job done? Consider it this way: an accountant can do your taxes much faster than you can, freeing up your time to take care of other matters that only you can handle. Plus, you can deduct the cost of hiring them.
Find someone now, so you’re not scrambling at the last minute. This is prime season for tax accountants and it might take them longer to answer your questions if you delay.
Step 4: Send Out 1099s.
If you’re a small business owner who uses independent contractors, you might need to send them 1099s if you’ve paid them more than $600 in the calendar year. Go through your business expenses and make a list of any people that might fit this category.
Collect their W9 and contact information to have when you need to file a 1099. An accountant might be able to help you in filing those as well and determining which people need to receive one.
You might also have traditional employees who’ll need to receive a W2 from you. You should also have their contact information and updated W4.
Step 5: Prepare Your Cash Flow Spreadsheet.
You or your accountant can start preparing your taxes early if you already have a list of your receivables and payables. For example, if you already use accounting software to track your income or expenses, you can use that information to determine how much you might owe.
Accountant and freelance expert Eric Nisall says he recommends to all his clients that they report all their income, not just what they receive on their 1099s.
Go through your business bank accounts to double check that your information is correct. Doing this before you receive tax information from your clients is helpful because you won’t be at the mercy of their timeline. Plus, it gives you a reference in case their form is wrong.
Set aside a specific day to go through this information. The more you can do before January 31 comes around, the better prepared and more relaxed you’ll feel.
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