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Tax season can be stressful for small business owners who haven’t properly organized their finances. Taking the time to get your financial records in order now will save you headaches when it comes time to file. Here are some tips to help small business owners get financially organized ahead of tax season.
Reconcile Your Books
One of the most important things you can do is make sure your accounting is up to date and accurate. This includes reconciling bank and credit card statements, categorizing income and expenses, tracking deductible expenses, and keeping supporting documentation. If your books aren’t in order, your tax return will be inaccurate.
Consider hiring a bookkeeper on a temporary basis to catch up if you’ve fallen behind. They can also ensure your books are set up properly for tax purposes.
Develop a Recordkeeping System
An organized recordkeeping system makes tax preparation much smoother. Decide on your method (digital or paper filing), then set up a process for collecting receipts and financial statements. Have a designated place to keep tax-related documents organized by year and category.
Scan paper documents regularly so you have digital copies as backup. Important documents to keep include:
- Bank and credit card statements
- Invoices for expenses
- Receipts for deductions
- Payroll records
- Sales records
- Loan and lease agreements
- Tax returns from previous years
Stick to your recordkeeping system throughout the year so documents don’t pile up.
Take an Inventory
Performing a physical inventory of your business assets at least once a year is important for determining depreciation costs. Your tax preparer will need this information, so be sure to document your inventory thoroughly. Consider using inventory management software to easily categorize and track your assets.
Review Your Insurance Needs
Meet with your insurance agent to review your business coverage. Discuss any changes to your business or assets that may impact your insurance needs. Update the coverage as required. Keep detailed records of insurance expenses, as premiums are often deductible.
Get Your Personal Finances in Order
Your personal finances can impact your business taxes. Gather any forms and documentation you’ll need for your personal tax return, such as investment income statements, retirement plan contributions, and records of any other income like freelance work or rentals. Staying organized with your personal finances makes it easier to handle your business and personal taxes cohesively.
Clean Up Your Business Structure
Take time to ensure your business structure is optimized for taxes. Consider whether switching to an LLC or S corporation could provide tax benefits. Review any shareholder or partnership agreements if you have business partners. Make any needed updates to ownership percentages or profit distributions that could affect taxes.
Review Sales Tax Requirements
Check in with your state and local authorities to review sales tax requirements for your industry. Make sure you have all necessary sales licenses and understand your obligations. Set up a system to easily track and pay sales tax on time. Stay current to avoid penalties.
Get Tax Expert Help
Don’t be afraid to enlist help prepping for tax season from tax professionals. Consider hiring an accountant or attorney to optimize deductions, review your business structure, and ensure you avoid any costly mistakes or oversights. You can even offshore your accounting needs to save you more money in the long run.
Preparing ahead of time for tax season can reduce stress for busy entrepreneurs. Get organized now by reconciling your books, reviewing insurance needs, cleaning up business structure issues, and correcting any sales tax compliance problems. Enlist help from tax experts to make sure no detail gets missed. With these financial organization tips, small business owners can tackle tax season with confidence.
Reviewed and edited by Albert Fang.
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Article Title: Tax Season Prep: Financial Organization Tips for Small Business Owners
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