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Updated by 11.24.2023
Five Tips for Shoveling Through the Tax-Prep Blizzard
It has long been said that in this world, nothing is certain except death and taxes.
Whether or not this is really so, what is certain is that April 15 the day tax returns are due is just a little more than two months away. Admittedly, small business owners should really be taking steps year-round to make tax return filing easier. However, if you haven’t been doing so, and maybe even if you have there’s no better time than now to come in from the winter cold and start shoveling through tax prep now before you get hit with a “blizzard” of work right before the deadline looms. Follow these steps.
Gather Your Documents
You’ll need statements pertaining to your business bank account(s) and, if applicable, your business credit card accounts. You’ll also need last year’s business tax return (if you use an accountant, and you should, he or she should have this on file, but check beforehand).
Partnership agreements, accounting documents, details of asset purchases (receipts, etc.), and depreciation schedules for previously purchased assets should be in hand as well. Even if it takes time to locate all of these documents, doing so now will save time and aggravation and help you avoid an even bigger case of the winter blues in the long run.
Prepare a List of all of Your Business Income and Expenses
The “income” portion of the list should include gross receipts, checking and savings account interest, sales records, returns and allowances, and any other unclassified income you happen to have received during the previous tax year.
Employee wages, office rent, insurance premiums, fees paid to professionals (for example, accountants and attorneys), and payments to contractors belong on the “expenses” side of the list. So do transportation and travel, advertising/marketing, phones, and other communications devices, computer and internet fees, and office supplies/equipment.
Examine Your Deductions
Many businesses overpay their taxes each year because they failed to realize that they are entitled to take certain deductions. And even if your accountant does ask you about these deductions as your return is being prepared, you may not have the information at hand in time for it to be included on your business tax return.
Business-related meals and entertainment rank among often-overlooked deductions and can easily cost a lot of money. Providing that these events involved work, there is no rule as to how much business talk they must involve in order to qualify as deductible. (Do keep receipts for each of these, though, along with a note about the purpose of the event). Is your business new? Expenses that got it off the ground may be deducted once it starts so gather receipts for things like continuing education courses and meals with prospective clients.
Furniture, supplies, software, employee reimbursements, and insurance (premiums on malpractice, worker’s compensation, and liability coverage) typically fall under this umbrella. Some companies are entitled to tax credits for paying a certain percentage of employee healthcare costs.
When in Doubt, Don’t Throw It Out
Look at your financial records now to ensure that they are up-to-date and accurate. Poor record-keeping will slow down tax return preparation and could even trigger an audit.
You may be tempted to discard information you think may not be useful in the tax return preparation process, and/or to toss old documents you find as you review your files. Not so fast. Avoid throwing away documents and information unless you are absolutely, positively certain it will never be needed again. The IRS recommends that tax-related documents be retained for three years after filing a given return, but that’s just a general guideline. If necessary, put questionable documents in a separate pile and ask your accountant what should be done with each of them.
Consider an Extension
If you absolutely cannot handle the entire storm of pre-tax paper-gathering, request an extension from the IRS using Form 7004. One caveat: The request does afford you extra time to file your business tax return, but the deadline to pay, if you owe taxes, is still April 15. Additional financial penalties and accrued interest will likely be incurred if Uncle Sam receives your payment after this date.
Few, if any business owners and individuals, for that matter enjoy the annual ritual of tax return preparation and filing, but it’s a necessary evil. Don’t delay; start today. Small consolations: It’s wintertime. At least, shoveling through papers is an indoor activity! And we here at E-Complish can empathize.
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