They say the two things on which you can count in life are death and taxes. Tax season is approaching, and though we don’t like thinking or talking about it, it is a necessary evil. We wanted to share how to prepare for tax season. Not handling your taxes in a timely manner can cost you and even your business money. Celebrities have gotten into trouble because they’ve evaded paying taxes—sometimes their fault, other times the poor guidance of a shady business manager. In any event, it creates a lot of headache, stress, embarrassment, and expense.
Employing a Certified Public Accountant (CPA) is effective and helpful for both tax planning and preparing of annual tax returns. As a business owner, filing your income taxes is very different than as an employee receiving a W-2 form from your employer. You may be able to deduct business-related expenses, including phone, automobile, internet, and, if you work from home, a portion of your personal dwelling. A seasoned CPA will identify other deductions.
Being self-employed means you are responsible for the payment of your taxes; when you’re an employee, your employer withholds money for state and federal taxes as well as social security. Self-employed business owners pay quarterly estimates to avoid any penalties and interest on outstanding taxes and to avoid paying a large lump sum at the end of the year. Your CPA will provide these estimates based upon the prior year’s tax return to forecast what the coming year will look like, business wise.
Creating annual budgets for both your business and personal finances is important. While you may or may not be able to accurately project your income, have an idea of your costs (some fixed and some variable). From there, you can cover those expenses while providing net income for yourself as the owner. Creating a plan to reserve funds for taxes and the payment of them is an integral part of your budget process.
While you may or may not want to hire a CPA, the complexity of your enterprise may require you to do so.
To adequately prepare to file and meet with your CPA, here are few tips:
- Keep all your business records and receipts in one central place so you may easily organize it all when needed.
- Create a filing system for your business papers, including bank records, contracts, copies of invoices, and receipts. Alternatively, if these documents are stored electronically, create folders on your computer and email accounts that are safeguarded.
- Use a bookkeeping program, such as Quickbooks, to invoice, bill, and pay vendors and to also reconcile your bank account(s) on a monthly basis.
- Review your bookkeeping or bookkeeping program regularly to ensure all of your payables and receivables are recorded correctly and accurately.
While paying taxes is no fun, being on the wrong side of the IRS is less so. They are a governmental agency granted all the powers to collect.
When it comes to taxes, follow these rules:
- Always file your taxes! Sticking your head in the sand will only make the problem worse.
- Find a good CPA who will help you account and plan for your taxes.
- Your CPA will help you identify deductions for business expenses.
- Organize your expenses prior to meeting with your CPA to minimize the cost of your CPA.
- Organize and collect copies of W9s/W2s for yourself and any employees/contractors hired.
- Make a plan and create a budget that includes projections for your tax liability.
- Pay your taxes on time to avoid unnecessary penalties and interest.
Good Luck this tax season, and I hope you get a nice refund!