How to Get Business Ready for Tax Season ordeal

There are few phrases more panic-inducing for business owners than “tax season.” This is especially true for business owners who may have fallen behind on their bookkeeping.
However, tax season doesn’t have to be the nail-biting, sweat-inducing, anxiety-ridden ordeal that some make it out to be. In fact, if you have the right plan and you know which deductions to claim, tax season may end up being a much smoother process than you’d ever imagined.
To help you prepare your business (and your bookkeeping) for tax season, there are a few key tips to keep in mind.
1) Take Note of Key Deadlines
Most American’s think of early April as “tax time.” However, the deadlines for individuals and businesses are very different, and can even vary depending on your business structure. For instance, if you’re a sole proprietorship you’ll be paying your taxes alongside everyone else on April 15th, 2019. However, multiple-member LLC returns are due March 15, 2019. Therefore, it’s important to take note of the key tax deadlines for your small business as soon as possible, so you have a better idea of your tax timeline. The IRS calendar for business and the self-employed can be particularly helpful on this front as it provides you with the monthly actions you need to take for your federal taxes.
2) Make Sure Your Bookkeeping Is Up To Date
If you’ve opted for the DIY bookkeeping appraoch—which many small business owners and startup founders do—it’s not uncommon to be a little behind on your books. However, you can’t file your taxes if your books aren’t up to date, so you’ll need to make sure you’ve completed a few key steps.
Make Sure Your Business Transactions Are Properly Categorized
One of the biggest mistakes that business owners make, is miscategorizing business expenses. Remember, business transactions should not only be recorded accurately, but also consistently. If you’re the one doing the bookkeeping, that means making sure that you don’t categorize online ads as an “advertising expense” one month, and “promotion” the next. Keep in mind that you avoid increased scrutiny from the IRS as longs as your business expenses are properly categorized according to tax reporting requirements.
Balance Those Books
Balancing the books means bringing the totals of your debit and credit sides into agreement in order to determine the profit or loss made during that period. If you’re using accounting software to do your bookkeeping, this will be done automatically. However, if you’re DIYing the process on paper or in Excel, you’ll need to do this yourself.
Reconcile Your Bank Accounts
In addition to balancing your books, you’ll also want to make sure you reconcile your bank accounts. This simply means documenting that an account balance is correct by checking that your books match the numbers on your bank records. This may require you to comb through every transaction from your bank account to make sure it matches what you have recorded for your business. If you spot an error, this is the time to fix it.
Prepare All Your Reporting and Bookkeeping Documents
If you’re working with an accountant to file your taxes, you can make your life (and theirs) a whole lot easier by collecting all the necessary bookkeeping records. This can include your journal entries, profit and loss statement, and your balance sheet. If you’re working with a bookkeeping service these reports will be automatically prepared for you. If you’re taking the DIY approach, you’ll want to print out copies of the records or collect the digitized records to send to your accountant.
3) Get Your Receipts In Order
One of the most frustrating parts of tax time is hunting for receipts. However, this is a necessary process in case you are audited and need to show proof of business deductions to the IRS. In other words, if you want to use deductible expenses to lower your tax bill, you’ll need careful record-keeping to back up those claims.
One way to make the process a little bit easier is to digitize your records. You can do this by either scanning and uploading copies of your receipts to the cloud, or you can use an app such as Receipt Bank to transcribe the information from the receipt for you. Considering you need to keep receipts that support business expenses for a minimum of six years from the date you filed your return, digital copies can help to keep paper files to a minimum. This digital receipts will also make it much easier to hand over your receipts to an accountant when it comes time to file.
4) Set Aside Money for Taxes
There’s nothing worse than earning money throughout the year, only to giant chunk subtracted during tax season. However, this situation is inevitable and you can prepare for it by simply setting aside money in advance. As a general rule of thumb, you should be setting aside approximately 30% of what you earn to cover both federal and state taxes. While this amount varies from business to business, it’s better to set aside more than you think you owe and have money left in your pocket, than to not set aside enough to cover your tax obligations.
5) Ask The Experts
Once you’ve taken all of the above steps, you may think you’re completely ready for tax time, however, there are still some variables to take into account. Tax rules and regulations change frequently and tax reforms such as the Tax Cuts and Jobs Act (TCJA) may affect your business.
As a result, it’s important to chat with a professional su