As a small business owner, you probably don’t get excited about tax season. At best, prepping your taxes feels like a hassle, the least fun of all your business activities. At worst, it has you pulling your hair out in a state of distress and confusion.
Tax season doesn’t have to be painful. With the following tips, you can take the sting out of tax-related tasks and save your business money.
Get an accountant
Enlisting the help of an accountant may seem obvious, but a startling number of small business owners try to take care of their own taxes in order to save money. Unless you’re also an accountant, preparing your own taxes may cost you more in the long run, and puts you at risk of inadvertently doing something illegal.
“You don’t know what you don’t know. Preparing a tax return isn’t as simple as filling out a form – if it was, I certainly wouldn’t have been studying for 20 years!” Debra Anderson, an accountant and award-winning small business specialist, said.
“Accountants are here to help businesses make the most out of the tax system within the bounds of the law,” she added.
Build a strong relationship with your accountant
If you want your accountant to help you make the most out of the tax system, you need to trust them with all the nitty gritty details of your business’s financials. Having a good relationship with your accountant isn’t just good for your taxes, it’s also beneficial for the long-term success of your business, according to a study by Xero.
“I’m here to have your back. Most people won’t speak to their best friends, their partner, their parents about their financial situation. But I am the person you need to tell everything and ask everything because I can’t do my job unless I know more rather than less,” Anderson said.
Regular communication with your accountant will help ensure they have all the information they need, and it will help you build a good working relationship.
“I tell my clients I want to see or hear from you more often than less because I need to understand you, I need to understand what you understand, what you don’t understand, and what your business needs,” Anderson said.
Keep business and personal finances separate
When you run a small business, it’s a huge part of your life, and sometimes the line between business and personal gets blurred. However, keeping your business finances separate makes them much easier to track come tax time.
“One of the biggest mistakes people make is that they don’t separate their business and personal bank accounts. The expenses get intertwined and they forget to claim things,” Anderson said.
“So what I recommend people do is open a separate business bank account. It doesn’t matter if you’re a sole trader or a company, you should have a separate business credit card, and every time you purchase anything for the business, put it through on that credit card. That way you can always go back to your credit card statement to track expenses, and you’re paying out of the business’s money.”
Update records frequently
Doing the books is a drag, but it’s going to be more of a drag if you do it at the last minute. If you try to prepare your taxes all in one hit, you’re going to lose track of things and likely cost yourself money.
“When small businesses don’t look after their books, they’re not capturing all their expenses. So they might be capturing all of their income, which is fabulous, the tax offices around the world are happy to collect taxes from the income, but if they’re not capturing all the expenses, they’re not taking full advantage of deductions,” Anderson said.
Putting tax preparation on the backburner until the due date also makes it a far more stressful task.
“Most people don’t do their bookkeeping until they absolutely have to. But if you just do a little bit every day, so when you buy something for your business, if you take a picture of the receipt and it goes straight into your accounting system, it’s done, you don’t need to worry about it. If you invoice at the end of every day, or even worst case every week, it’s done. Stay on top of it and it’s not a big job,” Anderson said.
Use accounting software to streamline bookkeeping
Automating your bookkeeping as much as possible with accounting software makes tax season much simpler, and gives you more time to focus on the enjoyable aspects of your business.
There are plenty of accounting programs to choose from. The best one for your business depends on many factors and may change over time, which is something else you should talk to your accountant about.
“Businesses change, and technology is changing at an exponential rate. These days, you want a program that’s mobile, that you can use to take pictures of your receipts on the spot, and you want to have a system where you can invoice quickly and easily,” Anderson said.
Don’t wait, start tax season prep now
If your books aren’t in an ideal state, now’s the time to get them in order! Speak to your accountant and let him or her help you put the proper systems in place to make tax season a breeze for your startup.