Budgeting / Business Finances / Financial Planning / Wealth & Prosperity

The accounting practices that will make tax-time a breeze for your business

We all dread tax season. Business owners—even tax veterans—are often scrambling at the last minute to track down all the files and books they need.

However, the tax season doesn’t have to be stress-inducing. Just stick to a few basic accounting principles and tax-time will be a breeze for your business.

Mind your books

The accounting practice that will alleviate the most anxiety during tax season is discipline. If you can keep your books up to date year round, you will be able to breathe easy come April.

Plus updated books give you a better vision of your business growth. Accurate bookkeeping and accounting helps to provide a snapshot of your company’s financial viability and records that are outdated or inaccurate provide a “snapshot” that is out of focus.

Put bookkeeping in the calendar. Make it part of your weekly routine. Set an alarm on your phone or computer. Do whatever it takes to dedicate yourself to updated books. A few minutes a week is much less daunting than a few days (or even weeks) once a year.

In the ideal, we’d all keep current financial records, but few of us want to grit our teeth and do it. If you can discipline yourself to reconcile your books weekly (or monthly at the very least), you will have a smoother tax season.

Know where the money is

Creating a great budget is an important financial principle for individuals and business owners alike. If you can stick to your plan, your money will be exactly where you expect it to be come tax time.

Keeping an eye on your books will also help you to expedite your invoicing and enable you to get paid faster. Improving cash flow has obvious benefits year round—not just in April—but if you can track down your account receivables on a more regular basis, you will also avoid overpaying on taxes and you won’t have to worry about having a lot outstanding come tax time.

Track expenses as they happen

Deductions like vehicle expenses and airfare are easily forgotten if you don’t record them right away. Track deductions and expenses as soon as they happen, so you don’t have to spend hours combing through old records and risk falsifying your tax forms.

Keep business and personal spending separate and reconcile expenses as soon as possible. Businesses are entitled to tax benefits, but the IRS isn’t going to let you know the areas you’ve missed. It’s up to you to keep exact records so that you get your share of the money when the taxman comes.

Plan for audits

Hope for the best, but prepare for the worst. Audits do happen, particularly to small businesses. In fact, as your gross receipts increase on your Schedule C, your odds of being audited also increase—up to 12.1%.

Accurate books lead to an accurate tax return. However, if you do have the misfortune of being audited, the process can be (mostly) stress free if you have kept pristine records. It’s also a good idea to get used to backing up QuickBooks or whatever accounting software you use. Investing in a data protection plan can guarantee against any unexpected losses or deletions.

Tax season is even more stressful if you’re guessing on your tax forms. You ought to prepare for an audit by making sure your numbers are exact, which is easy to do when you’ve kept year round records.

Automate as much as possible

In today’s world, automation is the norm and the same is true for accounting software. The days of shoe box filing and DIY excel spreadsheets are gone. There are many affordable, secure and easy-to-use accounting programs available to companies of all sizes.

QuickBooks is the standard for large businesses, but many small businesses can find free alternatives that pack the same punch. Tax filing software can also replace expensive CPAs and most software companies guarantee maximum refunds and accurate reports.

Don’t be afraid to hire a professional

If even after understanding these accounting best practices, tax season still terrifies you, there’s no shame in hiring a professional. Keep in touch with your tax accountant on a regular basis—not just once a year—so you have a better understanding of your financial data.

 

Evn if you do decide to hire a professional, you can save on costs by at least doing the bookkeeping yourself. Choose a simple and powerful bookkeeping software, so that you can hand over records that are current, accurate and good-to-go.

Whatever you do, tax prep should be a business imperative. Mind your books, mind them often, and you’ll see a decrease in stress and an increase in growth.

Jaren Nichols is Chief Operating Officer at ZipBooks, free accounting software for small businesses. Jaren was previously a Product Manager at Google and holds an MBA from Harvard Business School.

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