Paying more attention to the books now will cut chaos when the filing deadline looms next year
Can you believe this year is already past the halfway point? Before you know it, you’ll be filing 2017 tax returns. Rather than putting that dreaded annual task on your mind’s back burner, take these small steps to make the job easier. Your future self thanks you.
1. Organize. If you’re the type to file receipts on the floor of your truck, in a pile on your desk or even in a shoebox, try to up your filing game throughout the year. Sort and file receipts by category. If you’re tired of chasing paper, start scanning receipts and keeping them in computer files rather than manila file folders.
2. Log in frequently. Better record keeping now means less stress later. Accounting software can help, but it is only as good as its entries. Instead of using that software year-round, many business owners keep receipts and bank statements until the end of the year and then have a huge sorting job when the tax-filing deadline nears. Entries like mileage, business travel and entertainment expenses, small supply purchases, and credit card purchases should be logged daily or at least weekly.
3. Do more with that accounting software. There are probably features of your accounting software you haven’t taken advantage of. For example, linking your checking account through your bank to your accounting software reduces the amount of needed data entry and makes record keeping automatic. These up-to-date records can be linked with tax preparation software or forwarded to your accountant, reducing the time, effort, and printer paper required to complete your tax return.
There are other reasons to up your record keeping game besides eliminating tax prep stress and avoiding audit. Having orderly books makes a positive impression on lenders and investors should the need for their services ever arise.
4. Have a cheat sheet. Despite all of the electronic equipment we have at our fingertips, humans are generally better at remembering things they write down. That’s why I keep a tax cheat sheet. There are certain pieces of information I know my tax preparer requires every year and certain tax-related tasks that must be done by specific deadlines. I keep a list of these things in a place where I see it often. That way, I can check off items as I do them, fill in dates and dollar amounts, and make note of any irregularities that will require explanation come tax time.
For example, if you contribute to a retirement account like an IRA each year, note the date and amount you contribute when you do it. If you have a windfall in February and contribute, you might forget doing it by August. A quick look at your cheat sheet will remind you. It’s also a good reminder to pay bills that come due once a year, such as business liability insurance, and for keeping track of outside contractors who will require 1099-S forms. Consulting the list throughout the year eliminates the last-minute scramble to accomplish annual tax tasks.
While I make my own cheat sheet each year, resources are available online that list the records and information you’ll need come tax time, and there are handy checklists you can print out. Look for resources geared toward businesses set up similar to yours to make sure you are seeing the correct filing and payment dates.
5. Consider a big purchase. The Section 179 deduction on new or used equipment is still in effect for the 2017 tax-filing year. Section 179 allows a business to deduct all or part of the cost of new or used equipment up to $500,000 in the year it is placed in service, rather than recovering the cost by taking depreciation deductions. While this tax break continues for the 2017 tax-filing season, the Trump administration is contemplating tax reform, so the future of Section 179 is uncertain. A large capital expenditure isn’t something you should decide in the spur of the moment before the filing deadline, however. Consider now whether you can optimize this tax break for 2017, and then start shopping.
6. Keep up with changes. In addition to Section 179, other changes affecting your taxes may be on the horizon. Another tax issue to watch, for example, is the Work Opportunity Tax Credit, which provides a tax credit for hiring certain long-term unemployed workers including military veterans. The credit was extended, but it may not exist forever.
Stay informed on federal and state government actions that could impact your tax liability. While big changes make the news, smaller changes may not. Keep current by occasionally perusing IRS.gov. There are articles, videos and updates designed to educate taxpayers and help them prevent costly mistakes. You can’t take advantage of deductions you don’t know about, so consider it time well spent. If you hear something on the news or on the street about a new tax law, rule, or deduction, make a mental note to look up the details.
7. Get help now. Tax law is complex, and as your business grows, taxes can become more … taxing. If you’ve been going it alone but suspect you are risking audit due to mistakes, or that you are not getting the deductions you deserve, it might be time to hire an outside tax preparer. Don’t wait till the filing deadline is near, however. Start your search now, when candidates for the job have time to discuss your company’s unique accounting needs and tax situation.
Likewise, if you want to continue preparing tax returns in-house, the week before taxes must be filed is not the time to purchase new accounting software. Buy and learn how to use it now, when there’s less pressure.
8. Check your work. If you already have an outside tax preparer, go over last year’s return with them using a fine-tooth comb. Think of it as being unhappy with the grade you received on a term paper and asking the teacher how to do better on the next assignment. Yes, you still have work to do even if you have an outside preparer. Keep in mind if they charge by the hour, the more information you can provide them upfront, the less their fee will be. If your accountant has to sort through the shoebox or crawl around the truck floor, you might get a bill for those services that’s higher than the amount you owe Uncle Sam.