As a business owner, you want to keep revenue, so you know how to prepare for tax season 2022. Since businesses cannot avoid paying taxes, you should know how to be prepared for the tax season 2022. Preparing sooner can help alleviate your tax-related stress and set your business up for success.
Here’s your guide for the 5 best bookkeeping practices to prep for tax season.
- Ask a professional for help.
- Make sure to keep your personal and business expenses separate.
- Organize your documents.
- Be aware of tax deductions and filing dates.
- Plan for next year — now.
Ask a professional for help
Have you ever tried to read the tax code and laws? It’s not fun, overwhelming, and confusing, and they change regularly. For example, are you aware of the Tax Cuts and Jobs Act changes? If not, you’ll want to take your first step in being ahead of the bookkeeping game for tax season by hiring a professional bookkeeper.
A professional bookkeeper will:
- help you reconcile your documents
- review prior years’ tax returns
- examine your accounts
- understand the beginning, trial, and ending balances
- know how to problem-solve if the balances don’t match.
The professional bookkeeper will also ask questions like:
- What is the current status of your tax payments?
- How do you invoice?
- Do you have a payroll, and who takes care of it?
- Do you know of any significant issues with your accounts?
- Will you be looking to expand next year?
- And many others.
You’ll want to schedule regular times to meet with your professional bookkeeper during tax season so you are both on the same page and there are no surprises. Make sure the professional bookkeeper you hire is someone you can get along with, is available to answer your questions or emails quickly, and communicates well.
Make sure to keep your personal and business expenses separate
Having many other items on your to-do list may keep you from making sure separating your expenses is a priority. However, keeping personal expenses apart from your business expenses will go a long way in preparing you for a productive tax season.
Aside from limiting personal liability in the business, you will also avoid blurring any of those lines between your personal and business expenses, which could trigger an audit by the IRS.
Keeping your expenses separate throughout the year will also help make your bookkeeping more efficient since you won’t be spending time determining where to account for expenses at the last minute.
The Small Business Administration offers helpful insight into the best practices for separating your business and personal expenses. For example, consider applying for a Dun & Bradstreet number (DUNS), a unique, 9-digit identifier for businesses. This number can help you build credit for your business and keep your business credit profile separate from your personal one.
“Creativity is great–but not in accounting.” – Charles Scott
Organize your documents
Your professional bookkeeper may provide you with a questionnaire to begin the tax preparation process. This information-gathering document will help you provide as much detail as possible to your bookkeeper so they can prepare and file your small business taxes accurately and quickly.
Your bookkeeper will also need the following documents to begin the process:
- Income statement and balance sheet
- Bank, credit card statements, accounting, and payroll documents
- Last year’s tax return
- Partnership agreements, if applicable
- Asset purchase receipts and schedules of depreciation
- There may be more documents, depending on your situation.
Quality business accounting software will produce these financial records in an ideal business operating situation. However, if you currently need to utilize accounting software, now would be a great time to ask a professional bookkeeper about recommending one. Various programs are available, and you can determine the best one for you by considering their features, how easy they are to use, the cost, and how their customer service ranks.
When it comes to keeping your financial documents organized, there may be other strengths for you. You may be fully capable of managing your books, but you may also be much more suited to marketing than accounting. If this is you, let a professional take the tedious work of bookkeeping off your plate. Instead, you focus on what you do best and create a better return for your business by employing a talented bookkeeper to keep up with your books.
Be aware of tax deductions and filing dates
The tax laws change yearly, and trying to keep up with them takes work. Navigating the IRS website can be challenging for small businesses, so you should leave the minute details of interpreting tax regulations to a professional. However, it won’t hurt to know some basics.
- Know which tax deductions can apply to your business. For instance, if you operate your business out of your home, you can take advantage of the home office tax deduction.
- Do you need to file quarterly? Do you need to make estimates? When are the 1099s due to contractors? Small business owners need to be aware of their tax calendar.
The pandemic changed the makeup of tax dates and penalties. Your professional bookkeeper will stay on top of these important facts so that you can focus on your other tasks. However, you’ll need to know how state and local tax calendars differ from the federal level. Hence, you can assist in meeting deadlines by having your documents and financial records readily available.
Plan for next year — now
Once you have your professional bookkeeper on board, schedule regular meetings with them. Having consistent check-ins with your bookkeeper will ensure that you correctly maintain your records and track your expenses.
You’ll want to plan for monthly evaluations of your financial data. Reconcile your bank and business credit card statements each month, and if you find any issues or discrepancies, be sure to address them immediately.
In case of an audit, you will want to prepare your business with a storage system. Generally, keeping financial records and documents for seven years is the requirement, but verify this with your bookkeeper.
Remember that accounting software we mentioned earlier? Begin researching, with your bookkeeper, the available options for your business situation and invest in accounting software that will help your business track your one-off and recurring expenses.
The more you streamline your accounting processes, the better you can identify the areas where your business is strong and how to capitalize on this growth. Quality accounting software will also help you review your spending trends, which can help you determine what expenses you may be able to adjust to your business tax advantage for the coming year.
Conclusion
If you let a professional bookkeeper handle your books, you can relax during tax season. The key takeaways here are:
- Reach out for professional help.
- Keep your business and personal expenses separate and your documents organized.
- Make yourself aware of the common tax deductions and filing deadlines for your business situation.
- Begin planning for next year now.
By getting your house in order and planning for next year’s tax season, you’ll future-proof your business by planning realistic financial goals.
Reach out to us here at Victory Virtual, and let us connect you with one of our U.S.-based professional Virtual Bookkeepers. We’ll take this task off your to-do list so you can focus on growing your business.
Sources:
https://taxfoundation.org/tax-cuts-jobs-act-business-tax-increases
https://www.sba.gov/blog/5-ways-separate-your-personal-business-finances
https://www.business.org/finance/accounting/best-small-business-accounting-software
https://www.irs.gov/newsroom/get-ready-now-to-file-your-2022-federal-income-tax-return
https://www.smartvault.com/resource/choosing-the-best-document-management-solution-for-your-small-business