Tax season is right around the corner, and when it comes to being a business owner, things tend to get complicated. Do you have all employees on payroll, or do you also have some you’ve contracted? Do all of your employees have access to their W-2 form? Have those you’ve contracted received (and filed) their W-9? In this article, I will break down the necessary steps you must take as a business owner to ensure all your ducks are in a row.
HOW CAN I PREPARE FOR TAXES DURING THE PRIOR YEAR?
The best way to guarantee success (or the closest thing to it) during tax season is to take the right steps and precautions the year before.—
BEGIN WORK ON YOUR TAXES AS EARLY AS POSSIBLE
The filing date for taxes is mid-April, but that doesn’t mean you need to wait until the last couple months to file! The ability to process your taxes begins late January, which means you can start getting prepared at the end of the prior year. It is important that you become aware of tax filing, and make sure all deadlines are met, including sending out the required forms to every employee at the beginning of each year.
HAVE AN EFFICIENT ACCOUNTING PRACTICE
There are many ways to account for your finances and handle your payroll, including tracking it yourself via spreadsheets. Some of the best ways for a small business to handle their accounting are free services such as Quickbooks, Zohobooks, Freshbooks, and more. Ensure at the beginning of each year that your accounting system is formulated and practical for your business practices, will ensure that your tax documents for finances will run smoothly as well.
REACH OUT TO A TAX PROFESSIONAL
Depending on the scope of your needs and finances, outsourcing your tax documentation work to a professional may be the best route. In this capacity, a professional could maximize your deductions and write-offs, while ensuring all your documents are in order and sent out on time. If you want to limit your stress and responsibilities during the first quarter of the year, a tax agency or individual could present as your best option.
Beginning work on your taxes as early as possible (late January, when tax processing begins), having an efficient and practical accounting system, and connecting with a tax professional in order to understand the process, as well as teach yourself about taxes, are just a few examples of preparing your business for tax season.
WHAT NOT TO MISS~
INDEPENDENT CONTRACTORS VS. EMPLOYEES
The distinction between these two is very important for any business owner when handling tax documentation. If an employee of yours made over $600 in a fiscal year, they must be given a W-9 form in order to fill out their taxes. Many business owners make the common mistake of filing their contractors as employees—this misstep can cost you more in taxes, as well as cost you filing an inaccurate report to the IRS. Make sure each individual you contracted work for receives a W-9 form from you at the beginning of the following year.
INACCURATELY (OVER OR UNDER) REPORTING INCOME
This goes alongside an efficient accounting system; you want to make sure that the income your company generated within a fiscal year is accurate to your earnings. An easy way to overreport income is by inserting sales tax, so make sure your numbers do not include any taxation on top of them. Underreporting is a common practice that will often catch business owners in a mistake. An example could be as measly as selling equipment for your business that you no longer need, such as laptops or desks. If you engage in a practice such as this, you’ll need to report it as income on your taxes.
NOT FILING ON TIME
Filing on time cannot be stressed enough! By taking the precautionary steps discussed above, you can miss this common oversight made by thousands of business owners every year. This can largely be avoided by the general understanding of how the tax system works; what documents to have in place, what deductions to take advantage of, what accounting system fits best to your needs, etc. You can never be prepared too early, so make sure you understand how business taxes function, and you can ensure that tax season goes successfully not just for you, but for all of your employees.