6 Things You Can Do Right Now to Make Filing Taxes Less of a Nightmare
This article was written by our friends at Bench.
Most small business owners would rather get their teeth pulled than think about taxes. But preparing ahead of time is the single best way to prevent tax-time stress.
Here’s what you should do to get ready for your 2018 return.
Step 1: Get your bookkeeping in order.
Gathering your company’s financial information for taxes doesn’t have to be stressful, especially if you’ve got a solid bookkeeping system in place.
Make sure all your revenue and expenses are entered and categorized properly in your accounting software or spreadsheet.
If you haven’t done that yet, get together all your bank statements and receipts and make sure the information there matches the information in your books.
Having a hard time finding all your business’s expenses and income on your bank statements? That might be because they’re mixed in with your personal expenses. Separate your personal and business accounts if you haven’t already.
If you’re not sure whether your books are set up properly, get an experienced CPA or tax professional to take a look at them. The earlier you catch any major bookkeeping errors, the less trouble they’ll cause you during tax time.
Step 2: Get your records organized.
Hold on to invoices, sales records, receipts for business expenses, and any other documentation for earnings or expenses. Organize receipts for:
- Office supplies
- Employee and contractor compensation
- Client meals and entertainment
- Travel expenses
Closer to tax time, bring together all your relevant business and personal information, including last year’s tax returns and your Employer Identification Number (visit the IRS website if you don’t know it).
Step 3: Identify which tax forms you need to file.
On top of your personal tax return (Form 1040), every business owner must submit additional tax forms depending on what kind of business they run.
Sole proprietors file Schedule C.
Partnerships file Form 1065.
C corporations file Form 1120.
S corporations file Form 1120S.
You’ll have to file more forms if you hired employees (Form W-2) or contractors (Form 1099) and your payroll provider doesn’t automatically file W-2s and 1099s, or if you plan to deduct depreciation (Form 4562).
Make sure you know what kind of business entity you are, and check out Bench’s in-depth guide to business tax forms if you’re not sure.
Step 4: Set aside tax money.
If you owe at least $1,000 in taxes, the IRS usually requires you to make estimated tax payments through the year.
If you’re not sure how much you owe in federal taxes, a good rule of thumb is to set aside 30 percent.
There might also be state and local taxes you need to pay. Read up on those taxes on your state tax authority’s website and talk to your CPA to make sure you aren’t forgetting any.
Step 5: Keep an eye on recent tax reforms.
The Tax Cuts and Jobs Act (TCJA) took effect on January 1, 2018, and it means big changes for the way businesses are taxed.
Make sure you’re clear on how the TCJA will affect your business, especially if you run a C corporation, pass-through entity, or Specified Service Business (like a law firm, health-care provider, or artist).
Step 6: Decide how you’re going to file.
Unless you have a simple sole proprietorship and you’re comfortable with the process of filing your taxes yourself, we highly recommend getting a tax professional to do your taxes for you.
Talk to contacts in your industry to see if any of them can refer you to qualified accountants. An accountant with experience in your industry will have a better understanding of which expenses you can deduct, how to maximize those deductions, how tax law changes affect your business, and how your legal structure exposes you to any tax benefits or disadvantages.
Look for an accountant who can communicate accounting concepts in an accessible way. And remember that a truly good accountant doesn’t just do your taxes for you. They advise you on financial decisions, help your company grow, and leave you with a better understanding of your business.
Bench is bookkeeping done for you. We pair you with a team of bookkeepers who do your books, and simple software so you can keep track of your finances.