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Are you ready for tax season? April 18 is approaching quickly, and many day-to-day decisions significantly impact your overall tax obligations. By planning early, your business can stay on top of the paperwork<\/strong> that comes in fast and furious in the early part of the tax year.\u00a0<\/p>\n Follow these tips to ensure that your small business is ready for tax season:\u00a0<\/p>\n The first and most important thing small businesses can do to prepare is to have all of their paperwork in order. If you have a proper accounting system in place, such as QuickBooks, it can help you keep track of this information much easier throughout the course of the business year, according to Haley Slade, CEO and Founder of Slade Copy House<\/strong>.\u00a0<\/p>\n \u201cThere are all sorts of great software out there to make sure your cash is reconciled, old receivables are written off, and give you the ability to go through your inventory and make sure it\u2019s all accurate,\u201d Catherine Doe, Partner at PKF O\u2019Connor Davies<\/strong>, said. \u201cIt can also help you make sure that there are no additional deductions or things that need to be discarded.\u201d<\/p>\n Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents<\/strong>. These include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain the information you need to record in your books.\u00a0<\/p>\n It is important to keep these documents because they support the entries in your books and on your tax return. You should keep them in an orderly fashion and in a safe place. For instance, organize them by year and type of income or expense.\u00a0<\/p>\n Gross receipts<\/strong> are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts.\u00a0<\/p>\n Purchases<\/strong> are the items you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Your supporting documents should identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item to show that the amount was for purchases.\u00a0<\/p>\n Note: <\/strong>A combination of supporting documents may be needed to substantiate all elements of the purchase.<\/p>\n Expenses<\/strong> are the costs you incur (other than purchases) to carry on your business. Your supporting documents should identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item purchased or service received that shows the amount was for a business expense.\u00a0<\/p>\n Note:<\/strong> A combination of supporting documents may be needed to substantiate all elements of the expense.<\/p>\n Travel, Transportation, Entertainment, and Gift Expenses<\/strong> Assets<\/strong> are the property, such as machinery and furniture, that you own and use in your business. You must keep records to verify certain information about your business assets. You need records to compute the annual depreciation and the gain or loss when you sell the assets.\u00a0<\/p>\n The following documents may show this information:<\/p>\n Employment taxes The IRS announced Monday, January 23, 2023<\/strong>, as the beginning of the nation\u2019s 2023 tax season and when they will begin accepting and processing 2022 tax year returns. Due to this year\u2019s calendar, Americans have until April 18<\/strong> to file.\u00a0<\/p>\n You should begin getting all of your business information together as soon as possible. The more organized and prepared you are throughout the year, the better off you will be come tax season.\u00a0<\/p>\n Pro Tip:<\/em><\/strong> \u201cMake sure you\u2019re organized and prepared before you start filling out your forms. The last thing you want is to be scrambling at the last minute trying to get everything done. Not only will this increase your chances of making mistakes, but it\u2019s also going to waste valuable time that could have been spent doing other things like marketing your business or developing new products and services,\u201d Annie Morris, Editor in Chief at Made in CA, said.\u00a0<\/p>\n back to top<\/p>\n Slade says that typically, small business owners and entrepreneurs use a sole proprietorship or an LLC (limited liability company) to run their business. If you are a sole proprietor or the sole owner of your LLC, meaning you don\u2019t have any partners, you need to report all your business income and expenses using a Schedule C attachment<\/strong> to your personal income tax return.\u00a0<\/p>\n back to top<\/p>\n While you don\u2019t need an accountant and can certainly file your taxes on your own through Turbo Tax or similar platforms, experts suggest that small businesses consult with a specialized tax accountant. This way, you can maximize your returns and take advantage of any deductions you may not know about.\u00a0<\/p>\n \u201cThe one thing small businesses shouldn\u2019t do is not consult professionals,\u201d Scott Goldberger, a principal with Kaufman Rossin, said. \u201cThey should seek competent legal counsel and the appropriate tax and accounting counsel to ensure they have the best tax outcome that they can have.\u201d\u00a0<\/p>\n According to Brandon Reiter, CEO and Founder of Skyview CFO, LLC, here are some benefits to going through an accountant:<\/p>\n \u201cThe tax code is full of traps for the unsuspecting, but it\u2019s also full of opportunities for those who are willing to take advantage of them. A good tax professional will help you find those opportunities and make sure you\u2019re taking advantage of them,\u201d Morris said.\u00a0<\/p>\n back to top<\/p>\n Even though your accountant should be aware of any tax deductions you can utilize, it is also important for you to understand which ones apply to your businesses so you can better keep track of your documents in the future.\u00a0<\/p>\n \u201cMy clients are always worried about how they can reduce their taxes. The gate comes down on December 31, so if something hasn\u2019t been paid by that point, it does not count as a deduction,\u201d Goldberger said. \u201cSo understanding your method of accounting and what the cutoff period is are key factors.\u201d\u00a0<\/p>\n According to Slade, these are some tax deductions that small businesses can take advantage of:<\/p>\n To see what deductions your business may have, print out your bank statements and highlight certain transactions with designated colors. This can help you organize your expenses and not give as much work to your account. The longer they spend on your tax documents, the more money you have to pay them.\u00a0<\/p>\n back to top<\/p>\n Like filing your individual return, you can request an extension from the IRS<\/strong>, which gives you an additional six months (until October 16) to file your 2022 taxes. To request an extension to file your federal taxes after April 18, 2022, print and mail Form 4868, <\/strong>Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.\u00a0<\/p>\n However, the extension only grants you a grace period<\/strong> to file your final return. You still must pay the taxes you believe that you owe. Even if you underpay, by filing an extension, this reduces the amount of money you need to submit when it\u2019s time to file the final return.\u00a0<\/p>\n Stephanie Scheller, Founder and CEO of Grow Disrupt<\/strong>, advises small businesses to set aside 15% of revenue monthly in a separate account that is untouchable except at tax time. This way, you never have to worry about whether you have enough money to pay the tax bill or not.\u00a0<\/p>\n \u201cIt\u2019s a good idea for small businesses to set aside some money each month to cover their tax obligations. This can help ensure they have the funds available when it\u2019s time to pay taxes, and can help reduce the financial strain of a large tax bill all at once,\u201d Dennis Shirshikov, Head of Content at Awning<\/strong>, said.\u00a0<\/p>\n Scheller also advises to run tax strategy meetings quarterly. This allows you and your team to review what has come in, what is projected to come in, and where it\u2019s going. Additionally, in this meeting, you can identify any tax credits that you should be pursuing, or purchases that would help limit your tax liability.\u00a0<\/p>\n \u201cAlways make sure to do your own research first. Whether you have an accountant or tax advisor, as a business owner, the biggest advocate for you is yourself,\u201d Reiter said. \u201cYou can have as many professionals as you can hire, but the only person that will care the most about your business is you, so you have to do your own research, regardless of whether you hire a professional or not. Go to the IRS website, look at as many laws as you can, and read blogs \u2014 then consult with a professional.\u201d\u00a0<\/p>\n Use these tips to help you prepare for this year\u2019s tax season and more years to come.<\/p>\n back to top<\/p>\n<\/p><\/div>\n\n
\nStep 1: Gather All of Your Records<\/strong><\/h2>\n
Supporting Documents<\/strong><\/h3>\n
According to the IRS, the following are some of the types of records you should keep:<\/h4>\n
Documents for gross receipts include the following:<\/h4>\n
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\nDocuments for purchases include the following:<\/h4>\n
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\nDocuments for expenses include the following:<\/h4>\n
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<\/strong>If you deduct travel, entertainment, gift or transportation expenses, you must be able to prove (substantiate) certain elements of expenses. For additional information, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses<\/strong>.
\u00a0<\/p>\nDocuments for assets should show the following information:<\/h4>\n
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<\/strong>There are specific employment tax records you must keep. Keep all records of employment for at least four years. For additional information, refer to Recordkeeping for Employers<\/strong> and Publication 15, Circular E Employers Tax Guide<\/strong>.<\/p>\n
\nWhen Should You Begin Getting Tax Information Together?<\/strong><\/h3>\n
\nStep 2: Figure Out Which Tax Return Form to Use<\/strong><\/h2>\n
\nStep 3: Bring All Tax Documents to Your Accountant<\/strong><\/h2>\n
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\nStep 4: Take Advantage of Any Eligible Deductions<\/strong><\/h2>\n
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You can claim portions of your home that you use exclusively for your business operations.\u00a0<\/li>\n
You can\u2019t claim your commute between your home and your business, as well as traffic tickets or parking fees received during business hours, but everything else is fair game.\u00a0<\/li>\n
Some of your payroll expenses may qualify for deductions.\u00a0<\/li>\n
Ordinary, necessary, and directly related to your business legal and professional fees may qualify for deductions.\u00a0<\/li>\n<\/ul>\n
\nStep 5: Consider an Extension<\/strong><\/h2>\n
Covering Tax Obligations<\/strong><\/h3>\n