With the beginning of a new fiscal year, it’s time to get your tax preparations in order. If you’re well prepared, you can make this sometimes difficult and tedious process much easier. According to NFIB’s most recent Problems and Priorities survey, “tax complexity” and “frequent changes in federal tax laws and rules” made the top 10 list of the most severe problems for small business owners.
Get your taxes in order by answering these seven questions.
- Do you spend more than a few minutes per week bookkeeping?
Spending multiple hours per week keeping your numbers updated is too much, according to Aaron Lesher, CPA and head of customer success at finance app Hurdlr. Consider using software that will link your small business bank accounts, categorize revenue and expenses, and generate reports when needed. “Using a product that has automatic features will save you hours of extra work, make you more in control of your finances, and save you money on a dedicated bookkeeper or accountant throughout the year,” says Lesher.
- Do you use a payroll service? Are you pleased with the one you currently use?
According to Kevin Miller, who works to optimize bookkeeping and accounting for small businesses at Neat in Philadelphia, small businesses should have a credible payroll service provider that does the following:
- Crafts a federal and state deposit schedule for your business
- Files and pays taxes on time
- Manages tax-related onboarding responsibilities with new hires
If you don’t have a provider, you should find one who can oversee these tasks or ensure that you trust someone at your business to handle these responsibilities. If you do use a service provider, re-evaluate whether they’re adding value to your business and covering these duties.
- Do you keep digital copies?
“Failure to furnish receipts for travel, meals, and entertainment can result in the removal of these expense deductions, resulting in additional tax owed, including penalties and interest,” says Miller. If keeping digital copies of receipts isn’t a practice at your small business, there are plenty of mobile applications that can ease the process by allowing you to snap photos of receipts and import them into your business’ accounting system, Miller says. Consult Handshake’s list of apps for managing your receipts to find the right one for your business.
- Do you require your independent contractors to submit W9s?
If you didn’t instruct your independent contractors to provide W9s last fiscal year, you’re making your filing more strenuous than it needs to be. “A W9 provides all of the non-financial information your small business clients need in order to properly prepare, distribute, and file an independent contractor’s 1099, so the business should implement an internal policy that prevents any contractor from getting paid until the business receives a signed W9,” says Miller.
- Have you taken advantage of cash accounting?
Cash accounting allows small business owners to not have to pay tax on their income until they receive it, according to Lisa Greene Lewis, CPA and TurboTax expert. With cash accounting, you’re unable to deduct expenses until the money is spent. “So at the end of the year you might be able to accelerate a purchase before the year ends or tell a customer they can wait until January to pay their invoice,” said Greene Lewis.
- Do you report your income as you receive it?
“Most small business owners with gross receipts of less than $1 million a year find it beneficial to report on the cash method of accounting, where income is reported as it is received rather than when it is billed, and expenses are reported as paid,” says Greene Lewis. Using this cash method could give your small business more flexibility “to save taxes by shifting income and expenses between years.”
- Is it time to transition to the cloud?
If your small business hasn’t invested in the cloud, then you’re behind, Miller says. By transitioning your bookkeeping or accounting systems online, you can backup your documents and receipts more efficiently, and you can save yourself much-needed time.
Running your business from the cloud can mean “that whether you’re out of the office for a quick meeting or working from a different country, you’ll still have access to everything you need in just a few clicks,” says Emily Key, VP of Operations at online bookkeeping service Bench.
Save this checklist to consult every new fiscal year, and soon tax preparedness will become second nature for your small business.