Note: This is a guest post by Kirk Simpson, the CEO of Wave Accounting, a free accounting software for businesses nationwide. More of his bio is below.
Everyone knows tax season sucks. But it doesn’t have to be a big chore that causes a lot of stress. In fact, if you follow these tips, you’ll save yourself a lot of grief at tax time and save yourself some money.
1. Don’t procrastinate.
It’s an obvious point, but one that warrants repeating: Do not wait until the last minute to prepare your taxes. Doing so leaves you exposed to increased accounting fees, mistakes, late fees, and a late return.
Even worse, a mistake in your return could result in an IRS audit if your information is incorrect, according to Wray Rives, a certified personal accountant and member of the Wave Pro Network, a community of accountants and bookkeepers dedicated to helping Wave Accounting customers
2. Don’t rely on spreadsheets.
In addition to Wave Accounting, there are a number of affordable and time-saving financial tracking tools available for small business. These can help you record, manage and categorize your bills and invoices throughout the year. That way, when tax season rolls around, you aren’t left sifting through receipts trying to remember whether that dinner you paid for with your credit card last year was a business expense or date night.
Jody Seibert, certified accountant and also a member of the Wave Pro Network, suggests you do your research when you pick your software to ensure it fits both your business needs and budget. “Then, spend time to customize the settings for your business, learn to use the software, and then spend 15 minutes a day on accounting tasks,” she advises.
3. Don’t do it alone.
You may be tempted to try to save money by doing your taxes on your own, but truthfully, most small business owners do not have the time or knowledge to do them properly.
When you allow an accountant to do your taxes, their familiarity with the tax code is obviously more likely to produce savings for your business, and “the likelihood of making a mistake or missing a tax savings opportunity for a small business owner easily justify the cost to work with a professional,” says Rives.
4. Don’t wait to put money aside for your taxes
Give yourself some financial breathing room by putting aside money for your taxes throughout the year. Seibert advises her clients put aside 10-20% of their earnings in a savings account for taxes. Rives goes further and instructs his clients to set up “online savings accounts that automatically drafts your checking account — and helps make sure you have money set aside each quarter to pay your estimated taxes.”
5. Don’t be dumb (seriously)
Whether you decide to tackle your taxes on your own or lean on an accountant, there’s no excuse for not knowing, at the bare minimum, which tax deductions your business is entitled to. The IRS website is a great resource for general information for small business owners.
Use this information to guide how you structure your business and make decisions that are beneficial to you. For example, set up a dedicated bank account as soon as you make a decision to start a business.
“It is easy to lose track of these expenses if they were set up prior to business bank accounts being established and are charged to a personal card,” says Seibert. “It makes tax time much less stressful if you are not trying to remember what business expenses you have and how they were paid for.”
About the Author
Kirk Simpson is the CEO of Wave Accounting (www.waveaccounting.com) – ridiculously easy, totally free accounting software for small businesses worldwide. Simpson has headed three startups and, between ventures, he has logged many accomplishments with large firms such as Quebecor and small firms such as Key Media. Connect with Wave on Twitter @WaveAccounting.