Tax season is quickly approaching, and many small businesses are not prepared. Bracing up for year-end helps you file accurate tax returns and avoid plunging yourself in legal messes.
The secret is to start your preparations as early as possible. This way, you can spread the workload over a longer period of time and free yourself up for more important business operations during rush hour. Read on for a few basic preparation tips to keep in mind.
1. Use the right digital tools
Almost every business aspect now has a tool to complement, if not replace, human input. With a good software application, you can collect, store, and process information related to credits, income, expenses, and everything you will need in preparing your company for the tax season. Some business owners may feel their businesses are too small to warrant software assistance, but the accuracy of digital systems will always give them an edge over humans, regardless of business size. There are many different accounting software types to choose from, but it’s always wise to go for the most comprehensive one for utility purposes.
2. Separate personal and business records
Filing taxes is way easier if you avoid mixing your business finances with your personal finances. Most business owners have a tendency of not separating the two during tax time. This can be detrimental, as you have to remember transactions from as far back as 12 months ago. You are also likely to be hit by surprises as it is difficult to monitor business records when they are mixed with personal records.
Always have separate bank accounts, separate checks, separate credit cards, and separate recording systems for your business and personal finances. Strictly pay for personal expenses with personal money and business expenses with business money.
3. Consider bank statement reconciliation
Reconciling bank statements involves making a side-by-side comparison of your accounting books and bank statements. The point is to ensure you get the same total on both sides in case there is an error in your calculations. Bank statement reconciliation can help you cut back on taxes and ensure you pay nothing more than what you owe. For this reason, you need to reconcile your statements as regularly as possible. If not, ensure all records are kept in perfect order, so it’s easier to do reconciliation for the whole year.
4. Claim deductions
One way to keep your taxes to a minimum is to take advantage of all possible tax return deduction channels for your business. If there is something, you can deduct, review its viability, and record it.
It’s also worth noting that there are steps a business can take to increase the number of deductions it can claim. You can make charitable donations, for instance, or purchase business equipment. You may also benefit from hosting an employee holiday party or give bonuses to your workforce.
These are some of the ways to get your business ready for the tax season. Whichever methods you choose to adopt, the bottom line is to save yourself the last-minute hassle and ensure you submit accurate returns.