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Guest post by Amy Collett
The key to surviving tax-time as a business owner is staying organized throughout the year. If you’re feeling overwhelmed by the upcoming tax season, consider investing in tax preparation services from a trusted CPA. To help you prepare for an effortless tax season next year, here are some financial strategies to implement right away, presented by LedgerGurus.
Learn Which Forms to File and When
Make sure you understand all the forms you’re required to file for your business and exactly when these forms are due. It’s also important that you stay on top of recent changes to forms and filing requirements. For example, the 2020 tax year reintroduced form 1099-NEC for businesses reporting wages paid to independent contractors. To simplify and expedite the process, you can use an online payroll system like QuickBooks to e-file 1099 forms to make your life a little easier come tax time. In just three steps, you can file your form, print or make copies and then e-file with the IRS.
Organize Receipts and Expenses
Reporting your business expenses is essential for receiving the tax deductions you’re entitled to. Make it easy on yourself by organizing your expenses throughout the year with a solid bookkeeping system. Some of the most common business expenses deducted include advertising costs, delivery charges, accounting fees, employee benefits, supplies, utilities, rent, and the list goes on. Also, come up with a way to categorize all of your deductions so you can assess which can be written off and at what percent.
Keep All of Your Records in One Place
Keeping good financial records is one of the best ways to prepare for tax time and ensure you’re always ready to handle an audit. However, holding onto hundreds of receipts in an accordion folder can be inconvenient and risky. If your receipt folder is lost or damaged, those records are gone for good. Instead, consider going paperless and storing your receipts electronically. Take clear pictures of your receipts and organize them in some form of expense tracking software where you can record key information about each expense. Lastly, keep all of your digital files organized so they’re easy to find when you need them; a PDF file merger can keep similar files together so you don’t have to pull these important documents from multiple locations.
Separate Your Business and Personal finances
In addition to organizing your financial records throughout the year, keeping your business and personal funds separate is very important. You’ll have a much easier time tracking your business expenses if you use a separate account to make purchases. At the same time, separating your personal and business accounts can help you avoid assuming personal liability for loans, leases, and lines of credit related to your business.
Contrary to myths, you still need to file your taxes when your business breaks even or loses money. In fact, you might just benefit by reporting business losses. If you’re operating as a sole proprietor, you can deduct any losses your business incurs from other reported income. Familiarize yourself with tax myths so you can avoid costly mistakes on your own taxes.
For business owners and independent contractors, tax season is one of the most stressful times of the year. Make your life easier by following financial best practices for small businesses. Keep your expenses organized, take advantage of payroll systems to track information, and hire an accounting professional whenever you need guidance.
LedgerGurus provides businesses with a specialized, trustworthy accounting department. Learn more about our different accounting services by calling (800) 796-3130.