You vowed to get your tax information to your CPA on time this year. But despite your good intentions, you still ended up in a last-minute rush. Here are five steps you can take to prevent a repeat performance next year.
1. Know your status. Not all small businesses are created equal. Are you an S corporation? C corporation? LLC? Limited partnership? General partnership? Sole proprietorship? These distinctions can make a big difference in your filing status — and your deadlines. For example, S corporations are required to file Form 1120S, which has a filing deadline of March 15 in many cases. March 14 is not the time to remember this. (See the complete 2017 IRS tax calendar.)
2. Use deductive reasoning. It makes good financial sense to claim as many deductions as you're entitled to. But you need to determine what those deductions are in advance and structure your year-round recordkeeping accordingly. For example, if you travel to Las Vegas for a convention relevant to your business, that trip is deductible. If you go there to relieve the stress of running your business — no, that's not a legitimate deduction.
Don't just compile a haphazard collection of bills, receipts, invoices and expenses and then ask your CPA to figure out at crunch time which deductions are allowed and which aren't. Of course, using an outsourced bookkeeping service on a monthly basis can resolve this. You can get answers as questions come up instead of trying to figure everything out at tax time.
3. Don't make it personal. Many small-business owners blur the line between business finances and personal finances. Simple steps to avoid this include keeping separate bank accounts and credit cards for personal and professional use. But you need to be disciplined about it. If you're charging groceries with your business card or paying office rent with a personal check, you're creating an accounting (and tax-filing) nightmare.
4. Throw that paper away. Not literally, of course. If a supplier still issues paper receipts, you need to keep track of those. But many financial transactions, from banking to credit card sales to phone and utility bills, now offer electronic recordkeeping.
Besides saving on physical storage space, electronic files are much easier to organize. Often you can find the transaction you're looking for by tapping a few keys rather than rummaging through a pile of paperwork. Moreover, you can import your records right into most major accounting software systems without having to key in a lot of information. And if you worry about losing your electronic files, invest in a simple backup system. (Backup files are another argument in favor of outsourced bookkeeping services, by the way.)
Oh, and that paper receipt your supplier still gives you? You can scan that and store it electronically. And then you can throw the paper receipt away.
5. Don't make the process adversarial. The IRS is not your enemy. In many cases, in fact, the IRS can be your friend. "Tax law in this and every other developed country on earth is merely a series of incentives for business owners and investors," Tom Wheelwright, CPA and CEO of ProVision, told CIT Direct Capital. "Once you (and your accountant) get focused on that singular fact, you are on your way to massive tax reduction."
A Key to Your Success
Treat recordkeeping as a key to your success — because it is. You're busy. We get it. But if taxes are the last thing you think about, you're doing your business and your employees no favors by trying to do them yourself. You want the person handling your financials to make that the first thing — the only thing — they think about. If you haven't done it already, it's time to turn that responsibility over to a professional. To paraphrase an old saying: If you can't find the time to prepare your taxes, how will you find the time to prepare for an audit?