When it comes to your business taxes, the old saying rings true: An ounce of prevention is worth a pound of cure. Business tax preparation is indeed complex, but if you follow best accounting practices throughout the year, filing your taxes should be quite manageable.
Nobody wants to think about taxes outside of tax season, but planning for taxes should not be an annual event occurring only before your tax filing deadline. Making tax planning an ongoing activity in the background of your primary business will minimize stress and keep your tax liability as low as possible when tax season does roll around.
Here are some tips to ensure smooth sailing as you navigate the process.
Hire a professional
Hiring an accountant can prove essential to the financial health of your business. Although most people associate an accountant's services with filing taxes, working with a qualified accountant throughout the year offers many benefits for your business, especially, but not only, around tax season.
When it comes to filing taxes, your accountant has the best understanding of deductions and credits that your business is eligible for, translating into the greatest possible savings for your business.
In addition to the most obvious function of filing your taxes, an accountant will advise your business throughout the year, significantly improving profitability. Here are some areas where a professional's knowledge and insight will make a difference:
- Choosing a business structure. The way you structure your business has a direct impact on your tax amount, personal liability, and the tax forms that you need to file. A professional will make sure that your business operates under the optimal structure for your individual situation.
- Tax planning. In instances where there are multiple options available, a knowledgeable accountant will choose the optimal tax strategy to reduce your liability.
- Bookkeeping. Having an accountant perform your bookkeeping will ensure that all your records are in order when it is time to file taxes at year-end. This will also save you from a last-minute scramble and undue distress should you get audited by the IRS.
If you form your business with LegalZoom, you'll have access to their tax services.
Maintain accurate records
Maintaining organized and current records is paramount if you want your tax filing to be a breeze. Although staying on top of your record-keeping may seem like a tedious chore at times, you'll be thankful when tax season rolls around.
Accurate records are essential all the time since they provide a constant snapshot of your company's financial health, pinpointing both areas that are profitable and those that need improvement.
When it is time to file your taxes, your accurate record keeping will prove useful yet again, saving you both time and money. Well-maintained records will help you avoid a mad scramble before deadlines, while simultaneously enabling your business to claim all of the deductions it is eligible for. Furthermore, having organized records readily available will ensure that you pay the correct amount in taxes owed on time, thus avoiding any under/overpayments, penalties, or interest that might arise due to sub-standard bookkeeping.
How to prepare records for year-end tax preparation
Follow these steps before tax season to ensure that you have a full and accurate set of records available for use when filing your taxes.
- Check that you've posted all transactions for the year.
- Check that all transactions have been properly classified.
- Separate any personal expenses from business expenses.
- Make sure that all accounts balance.
- Reconcile any bank accounts to your ledgers.
Taxes are inevitable, but careful planning with an eye to the future will certainly minimize unnecessary stress and expense.
Find out more about Managing Your Business