Five steps to simplify small business tax preparation

Filing taxes isn’t exactly anyone’s idea of a good time. According to an AARP survey, Americans would rather spend the night at the airport, sit next to a crying baby on a long flight, or have a dental procedure than prepare their tax returns.

But taxes get even more complicated when you throw a small business into the mix. First off, if you expect to owe more than $1,000 in taxes for your business, you’ll have to pay taxes on a quarterly basis. Beyond that, you’ll need a few more documents on hand when you file your small business taxes, including bank statements, inventory records, and receipts. So many receipts.

If you wait until the last minute to gather these documents, sort through your receipts, and prepare your small business taxes, you’re going to wish you were sleeping on an airport bench instead. Emotional distress aside, you might not be maximizing the tax deductibles and credits available to small business owners, so you’ll end up paying more than you should.

However, there are a few steps you can take to make tax season a little less… taxing. Let’s take a look.

1. Keep your books organized throughout the year

Getting your books ready for tax season is easier when you maintain clean and organized records all year long. This way, you’re not in a mad rush to organize and reconcile your books at the last minute. Mad rushes result in mistakes—and mistakes will cost you, usually to the tune of overpaid taxes or an IRS audit.

Keep up on bookkeeping maintenance and avoid undue stress by:

• Categorizing all expenses as they come in so they’re organized and easy to locate. Diligently categorizing expenses can prevent transactions from slipping through the  cracks.
• Recording the payee on all transactions so you can easily track and categorize  every expense. You won’t have to dig through your receipts to determine what you bought or where.
• Recording the names of every vendor you pay, especially if you pay with checks. It’s  easy to write a  check without making a record of it. Beyond that, you’ll need to send  1099s to any paid vendor or contractor—so you need their names on file.
• Completing annual inventory counts. This can be a pain, especially if you have a large inventory, but it’s important to have an accurate inventory count to avoid inflating or deflating your pre-tax income.
• Reserving tax money or making quarterly estimated payments throughout the  year. If you’re not sure how much you’ll owe in taxes, it’s a good idea to set aside at least 30% of your pre-tax income. Keep your tax money separate so you’re not  tempted to spend it.

Staying on top of these minor bookkeeping tasks throughout the year makes tax preparation a little less painful. At the very least, you’ll feel less inclined to sign up for a dental procedure instead.

2. Prepare your books for tax season

As tax season approaches, you’ll need to prepare your books and documents for filing. If you’ve been diligent about maintaining and organizing your books throughout the year (see step 1), this will be easy! If not, you know what to do from here on out.

Preparing your books for tax time involves:

• Balancing and reconciling.  Reconcile your business bank accounts through January of the year following the  filing year to ensure all December transactions are accounted for. Make your balance sheet is balanced—there are no discrepancies—and that your records match your bank records.
• Identifying all income sources. Especially income from interest earned, recovery of a previous deduction, or unusual income like lottery winnings. These sources of income can be taxed and reported  differently.
• Noting any additional contributions. Investing in an IRA can result in a larger tax deduction. Plus, you can make the maximum contribution to your own account until tax day, April 15*, and still count it toward the previous year. Contributions to a Roth IRA may not be deductible.

Once you’ve reconciled your books, identified your income sources, and made any last-minute IRA contributions, it’s time to pull it all together. This means scanning and sorting receipts, making digital copies of paper records, and double-checking your data.

Of course, using a bookkeeping software like QuickBooks Online can streamline this process by automatically storing digital receipts, categorizing transactions, and highlighting discrepancies in your books.

3. Work with a bookkeeper

If you’re thinking “we’re only on step 3 and I already feel overwhelmed,” you’re not alone. Most business owners don’t feel totally confident when it comes to managing their books and filing taxes. And, let’s face it, business taxes are a lot. There’s a reason some people would rather sit next to a crying baby during an international flight than even think about their taxes.

That’s why we have bookkeepers. A bookkeeper can help you keep your books clean and organized all year long, giving you more time to do what you do best: run your business. What’s more, they’re able to spot errors and mistakes that might go unnoticed by your untrained eye, saving you money, too.

If you’re just starting out, or not in a position to pay for an in-person bookkeeping service, you still have a few options:

• Use a bookkeeping software like QuickBooks Online to automatically track  expenses, receipts, invoices, inventory, and more. You’ll still have to organize and  maintain your books, but the software automates most of the mundane processes. It  sure beats digging through a shoebox of crumpled receipts.
• Connect with a virtual bookkeeper through a service like QuickBooks Live  Bookkeeping. If you use a bookkeeping software, your bookkeeper can easily manage your books from afar. Communication is key to partnering with a virtual or remote bookkeeper.

When tax time comes around, your bookkeeper can help you prepare, organize, and package your deliverables for fast and accurate filing. And that’s priceless.

4. Organize your deliverables

We’re getting down to the wire now. It’s time to gather all the documents and receipts you’ll need to file your small business taxes. Before you file, make sure you have the following records on hand:

• Previous year’s tax return
• Business information, like business classification and tax status
• Bank statements for the filing year, including monthly statements from any account  associated with the business and from any business credit cards, loan account balances, and any business charges on personal accounts
• Payroll information
• Accounts receivable balances
• Inventory records
• Receipts for deductible expenses (including mileage logs)

If you’re using a tax professional, package those bad boys up and send them over so they can file on your behalf.

5. File! And start thinking ahead.

Before you submit your taxes, take one last look around. Review your completed and organized books for the final time. If everything looks good, file away!

Once you’ve filed, make any required or good faith tax payments (if you didn’t pay quarterly estimated taxes) before April 15*. Going forward:

• Plan to spend at least 30 minutes each week reviewing and maintaining your books.
• Schedule a monthly review of the previous month’s books to catch any errors that  may have slipped under your radar.
• Meet with your bookkeeper on a quarterly basis (minimum) to stay on track all year long.

Your diligence will pay off in big ways come tax time. You’ll spend less time preparing your books for tax season and more time growing your business. Plus, you’ll rest easy knowing you’re not overpaying your taxes. And that definitely beats spending the night in an airport.

Manage business purchases with QuickBooks and Amazon

Managing and categorizing business transactions is easy with the Amazon Business Purchases app for QuickBooks. It’s the smart and simple way to bring all your purchases from Amazon Business into QuickBooks, so you can review and organize transactions all in one place. See product descriptions, costs, and fee breakdowns for every transaction, then categorize and match with your bank transactions automatically.

This app only works with Amazon Business accounts. Sign up for a free Amazon Business account to access of wide selection of products and tools for your business.

*Tax day is typically April 15 every year unless that day falls on a weekend or holiday, then it is pushed to the next business day.

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