How to Simplify Business Tax Season
Business tax season is here! If that news sends shivers down your spine rather than a feeling of pride for having prepared properly, you’re not alone.
But even if you’re not the most meticulous person out there, it’s important to know that tax season doesn’t have to be complicated.
With a few simple steps, you can dramatically simplify this business tax season. Let’s take a closer look.
Tips for Simplifying Business Tax Season
It can feel overwhelming, but five straightforward steps are all most business owners and managers need to know to get their tax situation in order.
The trick? A little work throughout the year makes tax time quick and easy.
Stay Organized and Keep Your Books Up-To-Date
It may seem obvious, but it needs to be said in many cases – tax season is a lot easier with clean, organized, and up-to-date books.
This isn’t something you want to try to figure out at tax time. It requires a bit of care and diligence every day, week, and month throughout the year.
You should also contact your accountant well in advance of any filing deadlines to ensure you have all the documents you’ll need.
It’s also the time to ensure you have copies of receipts for major expenses you plan to apply toward deductions or credits. In some situations, you may need these to prove you actually deserve the tax breaks you’ve received.
Reconcile Your Accounts
This is a critical part of your regular, throughout-the-year maintenance that pays off big time during business tax season. Reconciling your books involves comparing your own financial and accounting records to real or external accounts.
For example, if your checking account has less than your books suggest, you likely missed some expenses along the way. Conversely, extra cash may result from work that wasn’t correctly accounted for.
These common bookkeeping errors are typically far easier to solve in the days and weeks after they happen compared to at year-end, so ensure you reconcile your accounts at least once a quarter or, better yet, once a month.
Make Quarterly Estimated Tax Payments
If you’re not making quarterly estimated tax payments every three months, you should be!
While they require a bit of extra time and paperwork, splitting up your tax payments throughout the year ensures you don’t find yourself without the necessary funds to pay when you file. In addition to spreading out the cost, it avoids penalties that can increase the amount you owe at filing time.
Make your quarterly tax payments based on last year’s earnings unless you have reason to believe your business income will be significantly different this year.
Divide your total taxes by four, and pay this amount once every quarter. You should also make sure you know when your quarterly payments are due.
In 2023, the quarterly estimated tax payment due dates are as follows:
- Q1 – April 18th, 2023
- Q2 – June 15th, 2023
- Q3 – September 15th, 2023
- Q4 – January 15th, 2024
Use the Right Business Structure
There are significant differences in how various legal structures of businesses are treated at tax time – differences that can result in wide variations in paperwork and total taxes due.
No matter which structure is best for you and your business, it’s critical to understand its strengths and drawbacks, as this can affect your tax strategy going forward.
Unfortunately, it’s too late for 2022 on this front, but it’s never too early to make the next business tax season smoother. If you’re unsure what to do, talk with a trusted accountant or lawyer to determine which type of legal treatment fits your needs.
Classify Workers Correctly
Businesses that hire people know that classifying workers correctly can add additional complexity to your tax picture.
Depending on how you classify your relationship with them, there could be important changes in taxes for both your business and the person working for you.
In certain situations, a traditional employee relationship makes the most sense. In others, both sides will be better off treating the worker as an independent contractor. This is another area where a trusted accountant with knowledge of your business and needs is vital.
Talk to Your Accountant to Learn How to Simplify Business Tax Season
All too many businesses find themselves rushing to their accountants in the weeks before taxes are due.
In reality, managers and owners should be working with an accountant long before tax season begins, meeting and speaking throughout the year to ensure things are on track for a smooth filing. Unfortunately, not every accountant is up to the task.
That’s not the case at PlotPath. Our experienced financial professionals know business accounting back and front and apply that same dedication to learning about your business’ tax needs.
By developing a trusted, long-term relationship, we can help your business not just survive tax season but thrive throughout the year. Contact PlotPath today to learn more and get started.
Don’t wait – tax day will be here before you know it!