Tax season is behind us, but for many small business owners, tax season doesn’t end on April 15th. The best way small businesses can ensure a smooth tax filing in April is to work with an experienced tax preparer throughout the year. An accountant and tax pro can help you make sound financial decisions throughout the year so that you can take advantage of tax breaks, keep your business fiscally healthy, and reduce your risks and costs. Here are some ways you can work on tax prep throughout the year to set your business up for success.
1. Keep Good Records
This is the number one way to reduce tax season stress and ensure that your business complies with all the most recent tax guidelines. With an accurate view of your finances throughout the year, you or a tax expert can easily determine which deductions you are eligible for. Excellent record keeping will also reduce your risk of an audit or make you feel more prepared if the IRS does audit you. At the bare minimum, it is recommended that small businesses use accounting software to track income and expenses.
2. Separate Personal and Business Expenses
If you were to be audited and the IRS uncovered personal expenses mixed with your business expenses, they could look into your personal accounts. This is why it is advisable to keep the bank account and credit card you maintain for your business separate from your personal finances.
3. Correctly Classify Your Business
The way you classify your business will impact your taxes differently. If you improperly classify your business, you could end up overpaying taxes. Deciding whether you are a C Corporation, S Corporation, Limited Liability Partnership, Limited Liability Company, Single Member LLC, or Sole Proprietor can be confusing. Consulting with an accountant can help you determine the best way to classify your business.
4. Claim all Income Reported to the IRS
It is critical that you are correctly reporting all the income that you receive for a given tax year. The income you report to the IRS should match the income reported on the 1099-MISC forms you receive (if applicable). If these numbers do not match, that is a red flag for the IRS to potentially audit your business. You must report all income even if a client does not provide a 1099.
5. Hire an Accountant with Tax Knowledge
The best way to ensure that your business is tax-prepared is to work with a knowledgeable accountant with experience in tax preparation. Accountants can do more than prepare financial statements—they can help you grow your business, offer robust record-keeping, and do your taxes. If you work with an accountant throughout the year, tax season will be a breeze. However, a good accountant can go beyond tax season to help monitor the overall financial health of your small business.
Halter CPA is an experienced boutique tax firm in New Jersey. We can help you keep your business on track financially and help you work throughout the year to ensure you get the most out of your tax returns. It is never too soon to start preparing for the next tax season.