Having been in the tax and accounting business for over 25 years, I used to dread this time of the year – knowing the number of hours and stress that was going to happen over the next few months. The chaos started in January with payroll filing deadlines and didn’t end until April 15th. I retired in the summer of 2016, and in January of 2017, it was such a wonderful feeling, knowing that I never had to deal with that chaos again!
Over my 25 years in the accounting world, I learned a lot – both about clients and their habits and about being prepared. And, not surprisingly, the clients that had a habit of being prepared always fared better at tax time. Whether they were an individual client or a business owner (which would also include their individual return), the story was always the same. The more prepared and proactive the client was throughout the year, the easier and less stressful it was for them – and us – when it came to tax time.
What does that mean, to be prepared and proactive for tax time? The documents don’t come until January, so what can you do before then?
As a 1040 (Individual) filer, a few things you do throughout the year that will help you be prepared for tax time:
- Create a folder to house anything that might be related to your tax return – mostly donation letters or charitable contribution receipts. Anytime you receive papers related to your taxes, put it in the folder for ease of retrieval in tax season.
- Create a digital folder on your computer to house anything you get via email or online. If it comes throughout the year, download it at the time, so you don’t forget it.
- Check your retirement contributions with your employer’s plan, and verify if you are contributing to tax-deferred or Roth accounts. Seek professional help for any retirement and/or investment advice.
- Mileage for charitable work is deductible, so keep a log of the date, miles, and purpose throughout the year.
- Medical expenses are deductible if they meet a certain threshold. If you think you might reach it, keep track of all expenses as well as mileage for any medical reasons throughout the year.
This article from Turbo tax goes a little more in-depth about these and other topics to help prepare for tax season.
As a business owner, you should be thinking about taxes throughout the year. In addition to the monthly recordkeeping of income and expenses, there are a lot of other tax considerations for you to make throughout the year.
- One of the most important items a business owner can do is to make quarterly estimated tax payments. This helps spread their tax liability throughout the year, rather than having to come up with a large payment on April 15th – and likely pay interest and penalty for late payments. Please see a professional tax preparer for help with this.
- Keep a mileage log for all business-related travel. Without detailed information, you should not take the deduction! Also, your business can pay you for your mileage, which is a way of getting income into your household while having a business deduction.
- Don’t forget to contribute to a retirement plan for yourself. If you are a solopreneur, you can contribute to an Individual IRA as long as you have earned income. Again, talk to your tax preparer about the details.
Being a business owner has many different facets, and taxes can be a critical one if you’re not prepared. Getting your business finances straight can make all of the difference in the world in the success of your business. You may consider a business financial coach, as well as having a CPA that you can talk to throughout the year, and not just during tax season.