Is Your Business Ready For Tax Season?
As a business owner, you have a lot of day-to-day responsibilities. From communicating with clients to managing your staff to strategizing for the future, it can be difficult to track all of the little details.
One of the most important aspects of running a business is tracking and understanding your finances. Getting your finances organized is especially critical with tax season coming up. Avoid the stress of filing your business tax returns by getting prepared ahead of time.
Here are our top 4 key tips for preparing your small business for tax season to avoid last-minute panic as the filing deadline approaches.
1) Separate Your Personal And Business Expenses
Make sure you have a separate business \checking account rather than keeping all your funds under a personal account. If they’re both currently under one account, it’s not too late to open a designated business account.
There are many reasons to separate these accounts aside from tax purposes:
- Securing a business loan often requires a designated business account
- Makes it easier for you to track your finances in general
- Allows you to better maintain a budget for both your company and your personal spending
Besides these reasons, failing to have two separate accounts will make filing your tax returns a nightmare. Sorting through countless transactions and determining which belong under your personal tax returns vs. your business returns would take hours.
The IRS allows businesses to claim deductions for business expenses. But, if you’ve been paying for business expenses using your personal credit card, validating how these funds were actually used becomes more difficult.
2) Consult Your Business Financial Planner
Do you have an accountant or business financial advisor? They will be able to help you get your ducks in a row before it’s time to file your returns.
A small business financial planner will help you make sense of your current financial situation and plan for the future. They can also help give you the knowledge and tools needed to track your business finances moving forward.
For example, there are plenty of free or inexpensive accounting software options available that automate your processes. Just a few include:
Talk to your financial advisor to find out which they recommend based on your unique needs. Depending on your industry, your budget, and the size of your business, certain platforms may be better than others. Your financial advisor will be well-equipped to lead you in the right direction.
As a local credit union, we care about the success of our fellow small businesses. Tax planning for businesses is challenging no matter how organized you are. At Inspire FCU, we understand these challenges and provide guidance to make the process as straightforward as possible.
3) Maintain Thorough Records Year-Round
While this tip may not apply for 2021 with tax season coming up in just a few months, it will help you strategize and plan ahead for your 2022 tax returns.
The trick is to spend a couple of hours each month making sure that your finances are in order. That way, once tax season rolls around, you’ll be ahead of the game.
Waiting until the last minute to get your records straight has risks other than causing stress. If you’re missing important documents, you could be missing out on valuable deductions. You also run the risk of being audited by the IRS if it appears that information was left out.
It’s a good idea to create digital or physical folders to organize and categorize all of your business expenses. Documents that you should keep in a safe place include:
- Bank statements
- Vehicle expenses
- Home office expenses
- Sales records
- All expenses (advertising, phone, electricity, business insurance, etc.)
Essentially, if you paid for something with your business card, ensure you have a record of it. This will help you save time and take advantage of all the deductions you qualify for.
4) Understand Which Deductions You Qualify For
Make sure you know ahead of time what expenses you can deduct from your business tax returns. Certain deductions will vary depending on whether you’re self-employed, an LLC, a corporation, or another business classification. So, you’ll need to know how your business is classified before filing your taxes.
According to a survey by Clutch, about thirty percent of small business owners believe that they overpay their taxes. They believe they could claim more deductions and credits but may not have the records to prove that they qualify.
Don’t leave money out on the table. Keep records of everything to find out if you qualify for the following common business deductions:
- Employee payments
- Advertising expenses
- Service or legal expenses
- Property deductions (supplies, computer equipment, phone bills, and home office expenses)
- Credit interest
- Business trips
- Startup costs
- Conferences, seminars, and classes
- Charitable donations
Even if you don’t qualify, it’s better to have documentation ready just in case. Missing out on deductions due to a lack of proper record-keeping is not an ideal alternative!
More Ways To Manage Your Small Business Finances
At Inspire FCU, we can help your business with much more than annual tax planning. From competitive business loans to checking and savings accounts to business insurance, we offer a variety of services designed to help your business thrive. Reach out to our team today to find out how we can work together in the future.