Taxes are complex. Tax laws are constantly changing. Keeping on top of these rules can seem like an uphill struggle. Small business owners face numerous challenges while preparing and filing taxes. They have limited resources and have to juggle multiple tasks.
Many last-minute tax filers scramble to make the deadline. They make mistakes and end up earning the wrath of the IRS.
They say preparation is half the battle. Tax preparation does not have to be time confusing or complex. Start preparing your taxes early to avoid last-minute confusion and ensuing chaos. Break down large tasks into bite-sized tasks. Carry out a task every day.
Here are some tips to help you prepare your taxes effectively.
1. Get Organized
Open a savings account specifically for taxes. You can use account funds to meet your tax obligations as a business owner. Start making estimated quarterly tax payments, or you may be subject to penalties. Keep your business and personal accounts separate.
Effectively track business expenses. Get sufficient documentation for them (for example, travel expense vouchers for travels that occurred during the financial year). Keep personal, and business expenses separate. To reduce paperwork, digitize receipts.
2. Hire a Professional
Preparing taxes can feel like an insurmountable task. You need to check transactions appearing in your books and verify and validate them. This is a time-consuming task. As a business owner, you have better things to do than maintaining your financial records.
If you have too much on your plate, consider hiring a professional such as a CPA or tax attorney. These professionals keep on top of tax rules and regulations. Your CPA will prepare your taxes, help you identify ways to minimize your tax liability, and ensure tax compliance.
3. Leverage Technology
If you rely on traditional paper-based methods, you will end up getting bogged down by paperwork. Paper-based methods are inefficient, and you need physical space to store your files and documents. Paper documents can be easily misplaced, stolen, or damaged.
Automate your document management processes. Using electronic statements is a great way to eliminate paper for good.
Use accounting software. Accounting software will allow you to access accounting data anytime, anywhere, foster collaboration, improve accounting security, and improve bookkeeping and accounting accuracy.
4. Stay Informed
Stay up-to-date on industry developments. Follow eminent people in the financial world and affinity groups that publish articles, information, and opinions.
Do not give attention to preposterous rumors. It is best to hear it straight from the horse’s mouth (in this case, the IRS) so you are sure it is true. Visit the IRS website to watch videos and participate in webinars.