Don’t Mess with the IRS
I’ve learnt the hard way that it’s “Best not to Mess with the IRS!” After more than one tax issue, and tired of the exhaustion from last minute cramming, I finally came to the realization that I needed to be proactive and organized with my tax planning. Recently, I’ve started reviewing my finances monthly and sending in my quarterly tax forms so that I can avoid the April stress.
I recently spoke to a small business accountant to get advice on how to make the tax process easier. Brittany Turner is a NYC-based accountant with a passion for working with small businesses. She founded Countless LLC, a modern and vibrant accounting firm. Below is some advice from her on how to be proactive about your taxes.
Proactive Tax Planning
How to Make April Less Anxiety-Inducing
Guest Post by Brittany Turner
Preparing for the upcoming tax season, keeping your books accurate and up-to-date, and executing a strategy to reduce your tax liability can seem daunting to small business owners. After all, you started your business to work with kids, not crunch numbers day in and day out. However, planning ahead will help alleviate unnecessary tax payments and ensure you are taking advantage of all the deductions available to you. By taking action on these things now, instead of at year-end, you will reduce stress and likely help your overall cash flow. And who doesn’t want to have more money in the bank right?
The general idea of successful tax planning is to reduce your taxable income to lower your liability. It is a strategy put into place to help you effectively and legally work within the tax laws to save yourself as much money as possible. You don’t want to wait until March to begin thinking about your taxes. Here are a few things you can do to get yourself ready for the upcoming tax season.
Don’t Put Off Your Bookkeeping
Bookkeeping is often lost in the day-to-day operations of a small business. You tell yourself you will do it at the end of the month. Or maybe next month. Or maybe you will catch up on the past 6 months all in one shot. It can’t be that difficult right? By putting off your general bookkeeping tasks, you might be losing money. It can be difficult to remember what certain payments were for, and you might realize you are spending way too much money on a certain area of your business that didn’t seem so obvious without the numbers in front of you. For example, you might discover you’ve spent a fortune replacing equipment, and this can help you modify how equipment is used and taken care of.
By staying on top of your bookkeeping, not only will you be better prepared come tax season, but you will also be able to see the bigger picture, with a true understanding of your business’s financial health.
Keep Receipts & Categorize Expenses
As a small business owner, you know that you need to keep receipts for all of your transactions. Throwing them into an old shoebox helps, but it isn’t all you should be doing. Keep documentation of all purchases, digitally if possible, and keep your receipts organized. This will help you quickly locate what you need come tax time. Keeping your expenses categorized will also help you to make the right purchases at the right time. For example, as a small business owner, you might benefit from purchasing needed computer equipment before the end of the year to capitalize on depreciation deductions.
Records & Reporting
Successful tax planning is the result of well-kept records and accurate reporting. Two of the reports you should be keeping your eye on are your Balance Sheet and your Profit and Loss Statement, or P&L Report.
The Balance Sheet will provide a snapshot of your business’s financial picture. A Balance Sheet will list your assets on the left and your liabilities and equity on the right. Your assets include things like equipment and the building if you own it. Your liabilities will include unpaid wages, taxes and long term debts. The right and left sides should always be in balance. This will help you track the overall health of your business.
Your P&L Report will show all of your revenue, minus all of the expenses incurred. This report helps you understand your ability to generate revenue and can help you spot deductions you might have missed. Be prepared to owe anywhere between 25-40%+ in taxes on your net income. A safe estimate is generally at least 30%. For a more exact percentage you should reach out to a tax professional, as everyone’s situation is different.
Go Where The Deductions Are
It is important to understand the deductions available to you as a small business owner.
Retirement plans and employee benefits such as health, dental and group life insurance, can prove to be large deductions. You can also deduct your rent, utilities, advertising, travel and much more. In order to capitalize on the deductions available to you, they need to be accurately recorded and categorized.
There’s An App For That
Whether you are looking for accounting software on the go, mileage trackers or an app to scan receipts, there is something out there that’s right for you. Many of the major accounting software programs such as Xero and QuickBooks will have these features built-in. However, if you are looking for a la carte options, try MileIQ or TripLog to keep track of your mileage. Expensify and Shoeboxed are great apps to organize receipts and help to produce expense reports.
Tax Planning – Stay Informed
Just when you think you have it all figured out, tax the tax laws will change. It is important that you stay in the loop or that you are working with a professional who is. Touch base with your tax or financial planner throughout the year. Don’t wait. It can be difficult to reduce your tax liability at the end of the year. People love surprises, but not when it comes to their taxes.
CPA and Founder of Countless LLC
Brittany Turner is a NYC-based accountant with a passion for working with small businesses. She founded Countless LLC, a modern and vibrant accounting firm.
Do you want to learn more about how the new tax rules will affect your business? If so, Brittany would be happy to provide more personalized insight! Reach out via email to discuss your questions or for general tax planning!