Make Next Tax Season Easier
Whether you are filing your own taxes or you hire a CPA, tax season always seems miserable for many. Even though the 2018 tax season isn’t over yet (see IRS due dates), there are things you can be doing now to make the 2019 tax season feel less a burden come this time next year.
Staff Paperwork
If you hire employees and/or contractors, you want to make sure you’re collecting all the correct tax forms. This information is very sensitive (usually containing social security numbers) so make sure you are storing it somewhere secure. Have a hiring or “on-boarding” process to ensure you collect everything you need.
In particular, it can be tricky when you hire independent contractors. Firstly, make sure you understand the difference between a contractor and an employee. For independent contractors, the biggest challenge come tax season is missing W9’s. It is the business’s responsibility to file a 1099-MISC form to report the income of the contractor, so you don’t want to be fined for not reporting. If you work with contractors at all, be sure to collect a W9 from them. It’s not always the case that you will need to submit a 1099 (here’s what IRS says on the topic) but you know until the end of the year and until you see how they fill out their W9. One very great tip from a CPA is to collect the W9 form before you issue your first payment to them. You’ll find contractors are probably much more quick to return their W9 compared to waiting until the end of the year.
Organize Receipts
There are a lot of phone apps (e.g. Quickbook’s Receipt Scanner) that help you record and organize your receipts. It’s as easy as taking a photo. If you don’t want the clutter, consider using your phone to manage your receipts.
Go the extra mile to annotate your receipts with notes. For example, jot down if the expense was for a particular client/project, if it should be reimbursed, etc. Of particular use is tracking your meals and what they are for. There are some meals that are 100% deductible; while others that are only 50% deductible. Whether you’re familiar with the distinction or not, writing on the receipt who was at the meal and a couple words about what was discussed will allow your CPA to make the distinction.
Keep Your Books Up-to-date
Bookkeeping can be tedious and awful, but you’ve just got to keep up with it or else it’ll get away from you. It will likely feel even more arduous the more you put it off. In addition, if you keep your books updated, you can have up-to-the-minute snapshot of your business’s finances and financial health. Developing an appreciation for this information and how it can help you make business decisions, can make this task feel more rewarding.
Whether you’re doing your own bookkeeping or you hire a bookkeeper, here are some things that may help:
- Consider using an online service (e.g. Quickbooks Online). This allows you to have access from anywhere you have Internet. It also allows you to grant access to other users — CPAs, accountants, bookkeepers, etc.
- Reconcile your books monthly. Making sure your books match your bank and credit card statements on a monthly basis means your books won’t ever get too far off track. That makes some mistakes (which happens to everyone) easier to track and correct.
- Review your financials regularly. Whether it’s monthly or quarterly (at least annually) review your business financials. Understanding where your money is going and coming from can be valuable information to help you guide the future of your business.
- Ask questions. If you hire someone to do your books, file your taxes, etc. make sure whoever you hire is patient and good at answering your questions. Don’t be afraid to ask stupid questions. Whatever level of understanding you want to have is up to you and your accountant/bookkeeper should help you attain your goal.
Stay Organize!
Stay organized. Create a space and a system for keeping important financial documents organized and in one place. Even if you throw everything into a box, that’s at least something, but consider a system that allows you to easily find the following:
- Bills – paid vs. unpaid
- Invoices – paid vs. unpaid
- Employee records
- Receipts
- Bank & Credit Card statements
Whether you are keeping digital or print records (or both!), sorting and organizing your financial records will make it easier come tax time to find answers to questions that inevitably come up.
If you like to keep paper records, consider buying stamps such as “PAID”, date stamps or signature stamps so you can easily and quickly annotate bills, statements, endorse checks, etc. These inexpensive supplies can take a little bit of the tedium out of being organized and keeping your records well-annotated.
Bottom Line
Ultimately, the more organized you are, the easier tax season will be for you. Incorporating financial tasks throughout the year as opposed to cramming it into the last few months leading up to tax day can make it all go down a lot more smoothly.
DISCLAIMER: The information and advice I offer on this site are from my own experience, understanding and independent research. I don’t receive commissions, affiliate money or any form of incentive for suggesting the services, tools, products that may be mentioned. I encourage you to do your own research, form your own opinions and practice your own strategies. Please share what works with the community.