3 Steps to Taking Business Tax-Filing Efficiency Into Your Own Hands
The tax code is complicated and constantly changing, so this can be an anxiety-inducing activity for many. We’re here to say it doesn’t have to be that way if you have the right plan. In fact, there’s a few simple steps small business owners can take in advance that can help streamline the filing process and maximize their tax savings for the year.
How Founders & CEOs Can Get Organized for Business Taxes
Step One: Know Your Deadlines
The IRS is known for being sticklers for due dates and for inflicting harsh punishments for those who fail to meet them. But even the busiest business owner can regain control over their taxes when they are fully aware of the dates and deadlines that are relevant to them and their business. Start by researching and building your own business tax calendar to stay on top of each and every deadline. In addition, here are two key time-sensitive things to consider:
- Filing an extension? The 6-month extension is a major plus, especially for small businesses with limited bandwidth to complete all necessary filing requirements so early on in the year. Just remember to PAY your tax liability on time. The extension may give you more time to file but you must pay by the original tax due date for your type of business. This will allow you to take the time to properly organize your information for filing based on the rest of the tips in this post.
- Was your business profitable this year? Congrats! This is great news. If your business is profitable, you will also be responsible for making estimated tax payments each quarter throughout the year. You can use your expected income to calculate your payment, but if you were also profitable in the previous year, it can be easier to use what’s called Safe Harbor to determine your payment responsibility.
Get Your Books in Order
Tax authorities use your financial statements, to see your income and expenses and determine your taxable income. So it benefits you to have these in good shape all year round:
“It all starts with having your books organized. Taxes aren’t that difficult if you have your accounting squared away.” – Jessica Mah, cofounder & CEO of inDinero via an Inc. Magazine Facebook Q&A
With that, you must be sure to prioritize closing your books at the end of the year:
Closing your books ensures your three primary financial reports—Profit & Loss (P&L), Balance Sheet, and Cash Flow Statement—are accurate and up to date. You can then rely on your balance sheet and cash flow statement will show how your net income has changed and fluctuated over the year. Your P&L can be used to determine your net income before hand and plan for any monetary liability you’ll owe and when you submit your tax return. These will also help you identify opportunities to lower your tax responsibility with tax deductions and credits.
Gather Your Business Information
The reasoning behind tax returns is to have a nation-wide system for tracking the way revenue makes its way through the country’s economy. Think of it as an annual exercise that pokes holes in each part of your business, including the parts that don’t always get a ton of attention. All of which is to say that aside from using financial statements to understand your revenue, tax authorities need to get a glimpse of what makes up your business. This is when you’ll disclose basic company information (name, locations, etc.), shareholder information, payroll/wages, as well as details for specific types of business activities.
All together now! Filing a Tax Return with Confidence
Tax season can go one of two ways:
If you let it sneak up on you, it can can become a flurry of last minute witch hunts to find all of the right information. But once you get organized, it can be as easy as fill in the dots. The tips from this post should help you start building out your plan, but there’s more to gathering the relevant information for each unique business than I could cover here. I recommend downloading a copy of our Fill Before You File workbook so you can store all your relevant tax information in one intuitive place. From there, you’ll be all set for a stress-free tax season!
Have questions or something to say? Start the conversation in the comments!