Entrepreneurs have a lot on their plate. Yet, most business owners believe they can take up more tasks and handle them just as good, especially small business owners. With a bunch of employees and a restricted budget, it only seems viable for owners to do more on their own. Of course, there is a lot that business owners look after to ensure their business runs smoothly. For instance, the services have to be up-to-the-mark, the product has to be of the promised quality, there must always be time to meet and converse with the customers, and you must be ready to innovate. But, there are certain areas where external help may be required.
When entrepreneurs decide to DIY everything, they often ignore the fact that they can be losing more than they would gain by doing it all on their own. Let’s take the case of accounts and taxes. Running and expanding a business is one thing, but managing the books is another. Filing tax returns can be complex and time-consuming. There are several IRS guidelines to understand and follow. Thus, to file an error-free tax return and still having time for your core business activities can be tough.
How to prepare for the tax season?
Although every tax season is different from the previous one, there are certain tips and tricks that always work when it comes to simplifying tax preparation. Here are 8 tips to help you prepare for the tax season 2020:
Organization is Key
Some of the carefree entrepreneurs ignore the importance of keeping things organized. Not managing your various sources of income and expenses can turn into a real struggle when the tax season arrives. Now, collecting hard copies of bills and checks may not be as feasible and can also be confusing. However, you can take the help of technology and store your documents digitally. With everything stored in one place, well in advance, you can ensure that your chances of filing the tax return accurately are higher. Accounting solutions such as QuickBooks hosting and smart tax preparation applications like ProSeries tax software hosting can both contribute to making your tax season stress-free.
Adhere to Tax Reforms
The IRS may be planning to initiate some changes in tax regulations. So, to make sure that you file your taxes accurately, it is important to keep yourself up-to-date with the tax reforms. For instance, the most recent changes introduced by the Tax Cuts and Jobs Act left many of us baffled. Be it individual filers, business owners, or accounting professionals, everyone had their fair share of struggle in understanding what the new changes meant for them and how will the TCJA affect their tax return. Thus, managing taxes alone may not suffice. Compliance with the changing tax laws is equally important to ensure you file the taxes with accuracy.
Calculate and Pay an Expected Tax Amount Quarterly
Business owners not only have to pay their own taxes but also need to bear the burden of tax payments for their employees. If you have been in business for several years, you might be having a decent experience in handling the taxes effectively. However, for those who are relatively new or filing for the first time as an owner, several confusions are on their way. To save yourself the trouble, the best thing you can do is to calculate and pay an estimated tax amount, keeping in mind some of the key elements like the previous year’s records, deductions, taxable income, credits, etc.
Take Your Liabilities Into Consideration
No matter the size of a business or the industry, every business has its own set of liabilities. When it comes to taxes, these liabilities can lead to confusion. Businesses must determine their liabilities accurately to make sure their taxes are precisely calculated. If you are receiving high capital-gains from mutual funds or expecting a year-end bonus, it is best to plan as much in advance as possible and calculate taxes separately.
Keep a Track of Your Tax Deductibles
Tax deductibles are a great way of reducing your overall taxable income. Whether you are an individual filer or a business owner, tracking your deductible expenses, including any necessary or reasonable expense you may have incurred during a year to earn an additional income can be claimed from your total income. Individuals can deduct travel expenses and any other investment made in their office. Bills, as well as other business taxes, can also be deducted. It is important to keep track of tax reforms to make sure you are deducting the right amount of taxes and not over or underestimating the deductibles.
Plan Your Purchases
Business owners can manage their purchases and buying behavior to save money. Investments made in business for purchasing new equipment or carrying out repairs and renovation can be used to write-off expenses. The best thing to do before making a big purchase is to discuss it with your accountant. Your personal advisor can help you make the best out of your business investments so you end up paying fewer taxes and save more.
Check Your Pass-Through Status
The TCJA permits owners who pass through a sole proprietorship to deduct 20% of their Qualified Business Income (QBI). So, businesses that are looking for some additional deductions can determine if they qualify to deduct their QBI or not. However, certain trades like doctors, lawyers, and dentists cannot seek a pass-through deduction.
Go for Professional Help
No matter how updated you are about tax reforms and other changes, it is always best to seek professional help and advice. A professional tax preparer comes with experience and knows a lot more about tax preparation than you might. So, when you find yourself struggling with certain challenges of tax planning, your professional tax preparer can help you dodge them swiftly. Also, for those who need help to understand the tax reforms better, your professional accountant can always assist you.
For any individual taxpayer or business owner, the end goal is to pay taxes accurately. This not only requires them to stay updated with the tax reforms, the changing IRS guidelines, or to seek help from your professional tax preparer. The tax preparation should be smooth, stress-free, and error-free too. To ensure that you pay your taxes in less time, with minimal efforts, and the least possible expense, you can either learn how to file a tax return with perfection, outsource, or you can leverage the potential of a tax preparation software.