Written by EFund Accounting Advisor, Joan Kane
You probably didn’t get into entrepreneurship just to wind up being a glorified accountant. Being prepared for taxes as opposed to scrambling in the eleventh hour isn’t really all that tough – it just takes a little foresight and follow through. Here are some tips to get you moving in the right direction.
1. Hire a Professional
The money you spend on third party tax preparation pays dividends on the time you save, the peace of mind in accuracy, and the ability to contact a knowledgeable source at every stage of your growing business. Plus- they are up on the myriad tax changes that happen every year and can make sure you are compliant, while also taking advantage of all the current tax breaks.
Meet with some different professionals and have specific questions. Choose a professional that harmonizes with you and your business in personality and experience. Here is a resource to help you come to these interviews prepared.
2. Know Your Deductions
The lower your profitability is, the lower your tax liability will be at the end of the year. Meet with your tax professional to discuss ways to legally and properly reduce your profit to reduce your tax liability. According to the IRS, businesses can write off any expense that qualifies as one of these:
- Ordinary: One that’s commonly used by other businesses in your industry
- Necessary: One that’s helpful or assists you in growing the business
Here is the most recent guide from the IRS regarding Business Expenses (it’s long, which is another good reason to pay a professional who has already read it to help you).
3. Keep Up on Your Bookkeeping Throughout the Year
According to research, most small and medium sized businesses aren’t prepared for tax time. Build your habits throughout the year to make taxes as smooth as possible by employing some of the following techniques:
- Categorize or record your transactions on a daily or weekly basis. Stay on top of the money in and out of your bank accounts and credit cards so that you don’t end up with an overwhelming amount of work to do against a deadline.
- Keep your receipts (preferably electronic and attached to specific transactions). Have backup ready for your accountant or the IRS in the event of an audit organized and ready to go. The best way to do this is by digitizing receipts and invoices and attaching them to transactions in your accounting system or keeping them in organized folders in a safe location such as an external hard drive. The shoebox method (although technically acceptable) can cost you lost time and revenue to sift through or pay to have sifted through in the event of an audit.
- Reconcile your accounts monthly. Making sure your accounting system is up to date and accurate on a monthly basis helps you confidently pull reporting and gain valuable insights into the performance of your business. In order to have accurate reporting, you need to make sure all your transactions have been accounted for, which you will be verifying during a reconciliation.
- Take a course or do some training in your accounting system. Learn what features and functions are already included in the system you use to better help you organize your finances. If you are a Microloan client, ask your Advisor to connect you with our Accounting or QuickBooks professionals to schedule some sessions.
Follow these 3 steps , and you should be well on your way to small business tax prep success. At EFund, we aren’t tax experts but if you have questions about available resources, let your advisor know. They can help point you in the right direction. Don’t have an business advisor, contact us to get connected with your local advisor.
Disclaimer: For advice and recommendations specific to your business please consult your tax professional.
About Joan Kane, EFund Accounting Advisor
Joan Kane is a QuickBooks Pro Advisor, and the Accounting Advisor at the Entrepreneur Fund. As a small business owner and former certified trainer, she is passionate about knowledge sharing and equipping entrepreneurs with functional skills in bookkeeping and financial reporting. When she’s not crunching numbers, chances are her nose is either over a cutting board or stuck in a book.