There are few phrases more panic-inducing for business owners than “tax season.” This is especially true for business owners who may have fallen behind on their bookkeeping.
However, tax season doesn’t have to be the nail-biting, sweat-inducing, anxiety-ridden ordeal that some make it out to be. In fact, if you have the right plan and you know which deductions to claim, tax season may end up being a much smoother process than you’d ever imagined.
To help you prepare your business (and your bookkeeping) for tax season, there are a few key tips to keep in mind.
1) Take Note of Key Deadlines
Most American’s think of early April as “tax time.” However, the deadlines for individuals and businesses are very different, and can even vary depending on your business structure. For instance, if you’re a sole proprietorship you’ll be paying your taxes alongside everyone else on April 15th, 2019. However, multiple-member LLC returns are due March 15, 2019. Therefore, it’s important to take note of the key tax deadlines for your small business as soon as possible, so you have a better idea of your tax timeline. The IRS calendar for business and the self-employed can be particularly helpful on this front as it provides you with the monthly actions you need to take for your federal taxes.
2) Make Sure Your Bookkeeping Is Up To Date
If you’ve opted for the DIY bookkeeping appraoch—which many small business owners and startup founders do—it’s not uncommon to be a little behind on your books. However, you can’t file your taxes if your books aren’t up to date, so you’ll need to make sure you’ve completed a few key steps.
Make Sure Your Business Transactions Are Properly Categorized
One of the biggest mistakes that business owners make, is miscategorizing business expenses. Remember, business transactions should not only be recorded accurately, but also consistently. If you’re the one doing the bookkeeping, that means making sure that you don’t categorize online ads as an “advertising expense” one month, and “promotion” the next. Keep in mind that you avoid increased scrutiny from the IRS as longs as your business expenses are properly categorized according to tax reporting requirements.
Balance Those Books
Balancing the books means bringing the totals of your debit and credit sides into agreement in order to determine the profit or loss made during that period. If you’re using accounting software to do your bookkeeping, this will be done automatically. However, if you’re DIYing the process on paper or in Excel, you’ll need to do this yourself.
Reconcile Your Bank Accounts
In addition to balancing your books, you’ll also want to make sure you reconcile your bank accounts. This simply means documenting that an account balance is correct by checking that your books match the numbers on your bank records. This may require you to comb through every transaction from your bank account to make sure it matches what you have recorded for your business. If you spot an error, this is the time to fix it.
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