For businesses – large and small – tax season is never over; it is an all-year-round event that never stops requiring your attention. From gathering and organising receipts, to filling in forms from freelance workers, you always need to be prepared for that inevitable time: tax day.
But does it need to eat away at your administration time, cost you an arm and a leg, and take you away from the more important aspects of your business?
Top Tips for Tax Season
As long as you employ the appropriate measures, then the answer to all these questions is no. To illustrate how, we have compiled nine invaluable nuggets of advice to ensure that your business is suitably prepared come filing day.
This is what you need to do:
1. Prepare Your Filing Early
Do you scramble at the last minute, searching for your receipts, frantically calculating your business expenses and gathering the right forms? If so, then this is not an effective way to prepare your tax filing. You will inevitably miss out on deductions, fill in incorrect information, or, if you're particularly stressed, perhaps even forget about that major equipment purchase from several months ago.
While you do not need to prepare your tax filing one minute after midnight on New Year's Eve, it is always better to be ready as early as possible. Moreover, you do not need to put your submission together on the same day; instead, you can do it in different sections throughout the week, such as one hour on Monday, two hours on Thursday evening and 30 minutes on Sunday morning.
This is a far better – and less troublesome – approach than attempting to complete a whole year's taxes just hours before the deadline.
2. Keep Receipts Throughout the Year
Let's be honest: trying to keep, store and organise your business receipts is much easier said than done.
It can be simple to misplace the receipt for that $50 lunch you took your client to, or maybe you were in a rush when you picked up that reduced-price printer in the sales. However, the taxman will not accept excuses if you then decide to add these expenses to your deductions.
So, what should you do? Here are some of the best ways to organise your receipts:
- Make purchases with only a business account, so you don't mix it up with personal expenses.
- Once you receive the receipt, make a note on the back for the item or service's purpose.
- Go paperless by scanning your receipts and transferring them to an electronic folder (still keep your receipts as a backup). Some accounting apps allow you to scan directly to their software and even calculates your expenses for you.
- Categorise your receipts, such as rent, communication, travel and supplies.
- Snap a picture of the receipt with your smartphone as a backup measure.
- If you have the time, maintain a business journal of your daily spending.
It's also good practice to keep your receipts archived for at least seven years.
3. Collect Business Records
Receipts are not the only things that you need to keep, file and potentially submit; you also need to collect and store your business records for tax season. This might elicit an eye roll, considering that it is already difficult to maintain a system for your receipts – but it needs to be done.
Here is a small sampling of the business records that you should keep:
- Bank records
- Cancelled cheques
- Professional services fees
- Invoices
- Petty cash slips
- Credit card and business account statements
- Work-related travel (plane tickets, fuel costs, repairs)
This is an undesirable and challenging task to perform, but you can apply the same storage and collation measures as you would for your receipts.
4. Be Aware of Your Deductions
Every tax jurisdiction has its own list of acceptable and unacceptable deductions, but, generally, anything business-related can be written down in your tax return as a deduction. That said, it is still essential to learn what deductions your startup or entrepreneurial endeavour can take full advantage of, in order to obtain a lower tax bill.
Here is a list of standard tax deductions in many countries and jurisdictions:
- Home Offices: Since many entrepreneurs and small business owners operate out of their homes, you can deduct work-related expenses, such as phone and internet costs. However, you can also potentially include mortgage interest payments, insurance and home repairs in your deductions – you just need to calculate (and prove) what portion of your home is dedicated to running your business.
- Startup Expenses: You could be eligible to deduct the costs of opening your business, including the acquisition of permits, licenses or registrations.
- Health and Retirement: Unlike full-time employees, small business owners are responsible for their own health and retirement. A growing number of health expenses, retirement plans and other related expenses are tax-deductible.
- Car: Whether you are meeting a client or buying supplies, you can deduct the fuel you use as a business expense. It is crucial, however, to separate your business and personal use of the vehicle.
- End of Year: When you want some year-end tax savings, it would be prudent to take advantage of various end-of-year deductions, such as charitable contributions, staff bonuses or capital cost allowance (accounting for deprecation of work equipment).
Remember: different jurisdictions operate different rules and practices, so it is vital to understand what deductions your government does and does not allow.
5. Learn About Freelancers
In today's global marketplace, it is more common than ever before for businesses – large and small – to acquire the services of freelancers and independent contractors. If your business has utilised such services, then you need to file the right forms for both you and them.
Once their work has been completed and they have been paid, it is helpful to obtain their most up-to-date contact information, request that they complete the relevant tax form in your jurisdiction, and attain precise details of the job (such as cost, time and purpose).
This is because, with governments cracking down on gig economy-related tax loopholes, it is becoming more difficult for companies to conceal short-term working arrangements with freelancers, even if they were paid through PayPal or cheque. On the plus side, you do not need to be concerned about freelancers and contractors filing their taxes – you only have to worry about your own.
6. Utilise Tax Software
Luckily, the days of manually writing down figures, crunching numbers on your calculator and combing through forms are finally over. Why? Because of technology, of course.
Your business can save a lot of time, money and resources by investing in specialised tax software. Many of the suites offered by companies give you the option of submitting directly to your tax-collecting agency from the software, too, which can drastically streamline your entire tax process.
Here are some of the most widely used accounting tools on the market right now:
- TurboTax
- H&R Block Premium
- TaxAct Premium
- Jackson Hewitt Premium
- Liberty Tax
7. Find out Dates and Deadlines
Businesses have different dates and deadlines than personal tax filers, with harsher penalties and fees for late payments, postponements and underpayments. As a result, it can be tough to keep track of everything when there is so much red tape involved.
However, you can avoid a whole host of headaches and unexpected costs by merely finding out – and making a note of – specific dates and deadlines for business returns. There are numerous organisational and time management apps that can help with this.
8. Select Payment Options
As a business, it is imperative to allocate a defined proportion of your profits throughout the year. By doing this, you have the necessary payment ready to go, and you do not need to worry about interest or additional penalties. This is an ideal scenario, of course, but it can pay to plan for the unexpected in business.
That said, you will need to consider the different payment options available to you. Every jurisdiction has its own policies, but, come tax day, you can likely expect a choice between:
- A full one-off payment
- A short-term payment plan over 120 days or less
- A long-term payment plan beyond 120 days
Whatever you opt for, ensure that you have made the necessary arrangements with your tax agency.
9. Get Ready for Next Year
By now, you may be fed up with taxes; however, this is the opportune time to get prepared for next year's tax filing. It may seem unnecessary to start preparing for it so soon, but all you need to do at this point is to get organised. Devise and implement a system to keep your receipts and records, programme any software you use for next year, and update any standardised documents, forms or other paperwork for the upcoming tax season.
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Unfortunately, it's a fact of life that you have to pay taxes, and as a business owner, they are going to be a big part of yours.
This doesn't mean that you need to wade through an ocean of paperwork and play accordion folders, though. With the right tools in place – organisation, software and a list of deductions – you can make it as easy as possible. After all, there's no avoiding them, so you may as well do it right.
What other tax season tips would you offer? Let us know your thoughts and experiences in the comment section below.