Thanksgiving leftovers are dwindling, the holiday season is in full swing, and many people are looking ahead to the new year— a time traditionally saved for fresh starts. As a small business owner, it’s likely you’re balancing year-end activities with new year planning, making it the perfect time to identify areas of your business that could benefit from a resolution or two. Office organization, company culture, and spending habits always make their way to the resolution list, but what about your taxes?
Though there are certainly people who instinctively understand the finer nuances of taxes and as such plan year-round to make the process effortless and painless – if that’s possible. Still, come the new year, many will enter into March and April with utter dread, knowing the tax time can be arduous and costly
Though taxes, particularly those for the 2020 fiscal year, are merely a logistical glimmer resting in the back of your mind, bringing visions of W2s to the forefront right now can save you a world of hassle next year and all the years that follow. Starting the new year off right can help you make your 2020 taxes easier, and it may just help you check some resolutions – like to be more organized – off your list. Once the calendar resets, put some of these tips in play to make next tax season a breeze.
1. Determine how frequently you need to pay taxes.
If you’re a small business owner or are self-employed, and you don’t have taxes withheld, then there is a good possibility that you need to pay quarterly estimated taxes. Sadly, many small business owners, freelancers, contractors, and sole proprietors fail to recognize this obligation, and even if they fully intend to pay all their taxes at the end of the year, they may still face a penalty.
The IRS has compiled a great resource for determining your obligations, and if you fall into one of the business categories above, you may want to verify your tax obligations. If you do have to pay quarterly, you’ll certainly want to factor that into your quarterly, if not monthly, expenses. Typically, quarterly estimated tax payments are due on the fifteenth of April, June, Sept, and January.
2. Keep things separate.
If you’ve been reading our blog frequently, then you are probably already well aware that when it comes to finances, it’s always best to separate personal from business. If you haven’t done that thus far, it’s important that you start the new year doing. This is particularly true when it comes to tax prep. You can separate finances by opening a business bank account and exclusively using it for your business needs. The same is true if you’re using a credit card for any transactions.
3. Keep diligent records.
Keeping accurate and up-to-date records is probably one of the most valuable practices you can get into, and that’s true for your tax obligations as well as your operational and financial obligations. However, importance doesn’t always trump practice, and some business owners fail to commit to a single system or practice regular bookkeeping duties.
In the new year, make it a point to set aside a chunk of your month and dedicate it to keeping your records and organizing your paperwork. It also helps to harness accounting and payroll software that can simplify the process. – Freshbooks, QuickBooks, Wave, Zoho Books, to name a few. If you are going to use software, now it the time to start reviewing and testing it out before committing for the year.
You can also use traditional record-keeping methods, be they digital, like Excel, or old fashion, like a paper ledger, but if that’s your preferred record keeping option, you’ll want to make sure you adhere to the next tip.
4. Back up your info.
I have vivid memories of sitting in my mom’s car and riding next to a pile of backup discs, something her boss made her take home nightly in the case of a fire, flood, or theft. And while we’ve come well past the days of backing up our computers on numerous discs stored in shoe boxes or file cabinets, the sentiment behind the practice should still be alive and well in your business.
Keeping diligent records is great but having a single copy on a single laptop or in a desk drawer can set you up for disaster. Thanks to cloud technology, storing your information externally is easy. As a bonus, you’ll be able to access your information from anywhere at any time.
Some software, like QuickBooks Online, is cloud-based, but if you’re not planning to implement accounting software, then you may want to consider using DropBox, Google Drive, iCloud, or any of the other popular cloud storage platforms available.
5. Keep your receipts.
In reality, this should be part of your diligent record keeping, but because it’s different from your payroll and revenue, it’s worth mentioning separately. Meals, miles (if you aren’t taking a standard deduction), equipment purchases, supplies, etc. can be filed as deductions come tax time, but if you don’t keep your receipts, you may be out of luck. Capture every receipt, every time.
You can go the way of the backup disc and stick these in a shoebox, but your best bet is to use a receipt tracking app (e.g., Shoeboxed, Expensify) or accounting software that includes a similar feature (e.g., Wave).
6. Consult an accountant.
If you already have an in-house accountant, then you should be able to rely on them to get a lot of this in order, but if you don’t, then you may want to consider consulting one, even if it’s only a few times a year. A qualified accountant can help you plan for and adapt to changes in the tax code as well as inform you about tax credits specific to your industry or federal and state tax codes. In the end, meeting with an accountant can save you a lot of headaches and potentially a significant amount of money.
As you close out the year and look ahead to 2020, you may be tempted to keep taxes out of the picture until March or April, but if you really want to make your 2020 taxes easy, then the best time to start is now. Determine a feasible record-keeping practice, test-drive some accounting and receipt scanning software, and work with an accountant to solidify a path towards a no-hassle tax season and financial organization. You’ll quickly find that it’s a resolution worth keeping.