Running the backend operations of your growing business can feel like solving a Rubik’s Cube while the colors are being printed. Burleson and Fort Worth Entrepreneurs quickly learn that taking a great idea and making it a legal entity comes with a lot of IRS strings attached.
Understanding how to prepare for business taxes is one of those frustrations of operating a business that requires you to think ahead. The problem is that most entrepreneurs don’t think about it until April… And by then, it’s usually too late. Take control of your business tax preparation with these tips on working with a business tax advisor.
Common Tax Mistakes Small Business Owners Make | Staying Ahead of the IRS
Failing to separate personal and business finances is one of the most common pitfalls with first-time entrepreneurs. You think swiping your personal credit card to quickly fill up the printer with ink is no big deal, but it really complicates your business tax preparation. Try pulling apart deductible expenses when you can’t differentiate business meals from happy hours with clients. Setting up a dedicated bank account and accounting system is key,
Helpful Hint: Learn To Read Your Financials Like A CEO!
Overpaying self-employment tax or quarterly estimated taxes is another rookie mistake made by “Aspirer” stage business owners. When you work for yourself, you pay both the employee and employer portion of Social Security & Medicare taxes. Writing that 25% – 30% check every April really stings when you weren’t prepared to set money aside throughout the year. A qualified business tax advisor can help project your liability and withhold appropriately.
Keep Track Of Your Own Books
Lastly, many small business owners tend to procrastinate on their own bookkeeping. (“Scope creep” is real, even when you are looking at your expenses.) You may have started the year with a simple Google Sheet, but find yourself drowning in Excel by December.
Manual entry equals “leaky books” — and any missed deductions are 100% your responsibility. Missed deductions could be anything, from home office costs and mileage to uniform expenses. If you’re not making decisions based on data and educated guesswork, you’re going to miss something. It’s time to upgrade how you track your expenses.
Quiz: Is Your Business Tax Ready?
Q. Do you have a separate business checking account?
Q. When was the last time you reconciled your books? Was it within the last 30 days?
Q. Do you know your exact net profit for the current quarter?
Q. Are your receipts filed electronically and by category of expense?
If you answered “no” to two or more of these questions, you would benefit from hiring a professional business bookkeeping service.
Business Documents To Prepare For Taxes | Building Your Audit-Proof File
Paying careful attention to your finances throughout the year will eliminate the panic that comes with filing your taxes. Before you can conquer your fear of the IRS, you have to gather physical records that correlate to your economic activity. “If you don’t have the records, you don’t have a defense” is a common phrase among business consulting firms. Below are the key items you’ll need before meeting with your CPA or tax preparer.
Get Your Financial Statements In Order
Everything starts with your Profit & Loss (aka P&L) and Balance Sheet. This includes gross sales, returns and allowances, payroll expenses, supplies, rent, travel, and any professional services you paid for. Depending on the complexity of your business, you may also be asked to provide:
- Income Statements: Gross receipts, returns and allowances, sales taxes collected, interest income
- Expense Reports: Rent, Utilities, Advertising, Insurance, Interest paid, Business supplies, Freight
- Employment Taxes and Records: W-2s, 1099’s, Payroll tax reports, Worker’s compensation insurance, Unemployment tax returns
- Asset Documents: Equipment Purchases, Vehicles, Property leases
Start Saving Every Receipt
Most business consulting firms will recommend keeping an active “Tax Folder” throughout the year. As tedious as it sounds, saving that emailed receipt from Office Depot to your OneDrive right away is highly beneficial when April 15th rolls around.
Professional business bookkeeping services take this concept and automate it. By having a bookkeeper categorize and reconcile your expenses as they happen, you’ll save countless hours before tax season.
How Hiring Professional Business Tax Preparation Saves You Money
Some business owners view paying for professional bookkeeping and tax services as just another bill to pay — but the truth is hiring an accountant often pays for itself by finding loopholes and advantages in the tax code. Depending on the size of your business, there are more credits than you know out there, just waiting to be claimed.
Ask Your Advisor
Maximizing your deductions is only half the battle. If your business structure was the best option when you started, is it still the best way to file come tax time? A good financial advisor will review your legal entity and explain the pros/cons of remaining a sole proprietor, LLC or S-Corp.
But entity selection is only one part of the discussion you should be having with your financial advisor. If you hire local contractors in Fort Worth to run HVAC through your store every year, you need to manage their returns and quarterly taxes as an employer. Saving your clients hundreds on payroll and quarterly filings is a main responsibility of the business advisor.
If you use annual business bookkeeping services, your tax advisor has already done the hard part. Coming in for a quarterly checkup allows your accountant to pull clean financials at any time. No more March “Fire Drills,” asking where receipts go or if that $2,000 wire was really for office supplies. Understanding the basics of your financial statements is important for any business owner.
Financial Tips You Can Act On Right Now
- Set aside 20% of every transaction into a “Taxes” account.
- Take your books out for review monthly.
- Scan receipts with your phone or invest in a bookkeeper to record them for you.
- Don’t wait until the last minute to get professional advice — get started by Q2!
The bottom line is that running your business should not be complicated by messy books or misunderstood tax regulations. When you take the time to create systems that add clarity to your income and expenses, you will feel less stressed about making financial decisions. Feeling confident about your business’s financial picture allows you to stop running your business by gut feeling and start utilizing your data to grow!
Give Havins Business Services a Call
You started your business to provide a service or create a product. Accounting and taxes were probably the last thing on your mind when you dreamed about building your empire. That’s why Havins Business Services is here to help guide you through every stage of business, from launch to legacy.
As local business consultants serving the Burleson and Fort Worth areas, we have seen every tax situation you can imagine, from first receipts to CEO briefs. No matter what stage of business you’re in, we can assist — and take the burden of complex financial topics off your plate. Reach out today and get started on your journey to stress-free business management.