There are many reasons you may have gone into business for yourself— maybe you desired more freedom or creativity, or you had a dynamite idea or a great opportunity. But in all probability it’s a pretty safe bet you did not become an entrepreneur because you liked handling business taxes (unless of course, you are an accountant).
The irony is that no matter how you feel about them, taxes are one of those things you have to master if you want to stay in business. You can possibly survive a less-than-stellar location or an occasional lapse in service, but fail to handle your taxes properly and Uncle Sam will make sure that a late shipment is the least of your concerns.
And with tax season and its accompanying stresses upon us, it is important to remember that the best thing you can do to prepare is, well, prepare.
Here are five tips that can make doing your taxes a little bit easier:
1. Digitize your receipts: Do you still keep all of your receipts in the proverbial shoebox, only to spend days sorting through and inputting them into your computer? Well, there are better ways! Here are two great options for handling receipts:
- Use apps: These days, the ability to have all of your receipts scanned and inputted is only as far away as your smartphone. There are many mobile apps that allow you to take pictures of your receipts and have them uploaded into a spreadsheet in the cloud. I am partial to the one offered by Concur, which was the first to pioneer this kind of technology. The quality of their product is unmatched, in my humble opinion.
- Outsource it: Shoeboxed has an app like Concur, but they also offer the option of taking care of everything for you— you can actually send them all your receipts, and they’ll scan them for you and send you the digitized files.
2. Get your income in order: You likely have different sources of income as a small business owner— large clients, small customers, real estate investments and so on. One of the biggest mistakes you can make in your taxes is underreporting income, so you should begin to reconcile your books now. Go over invoices, ledgers, bank statements, 1099s and any W9s you filled out for the year. Make sure you know who paid you how much so you can report it accurately.
3. Review your benefits: Don’t forget to take benefits into account— anything you paid out over the year for you and your staff should be noted. This includes payments you made for contract labor over $600, retirement benefits paid to employees, travel expenses reimbursed, trainings you paid for, etc.
4. Prepare for the worst: While the chance of the dreaded audit is relatively low for a small business owner (about 2.5% according to the IRS), it still would behoove you to prepare your taxes and records as if you may be audited because, unfortunately, it is a reality. The entire experience can potentially be avoided, or at least its impact mitigated, if you take the proper steps right from the start.
Not only does that mean having your taxes and records accurate and in order, but it also means avoiding certain behaviors that can prompt an audit in the first place, such as:
- Questionably high deductions: The more liberal you are with your expenses, the more you raise a red flag.
- Not reporting income: All income is income. Forgetting to add any of it can land you in hot water.
- Reporting repeated losses, or very high income: Reporting a loss every year on your Schedule C, or income in excess of $1 million, can also be a trigger. However, if that is your situation, it is fine— as long as you can back it up.
5. Speak with a pro: To the extent you have issues and questions as you do your taxes, it is smart to get the advice of a tax professional. Because mistakes on your taxes can be very costly, this is one place where you do not want to skimp. An enrolled agent, CPA, or other tax professional is usually well worth the money, both in actual savings and peace of mind.
How do you prepare every year for tax season? Share your stories below.
About Steve Strauss
Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest,The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss