What Businesses Can Do Now Before Filing Their Return in 2018

The most stressful time of the year for small business owners is tax season, which is why 70% of them choose to outsource their tax preparation, according to Forbes.

​However, even if you hire a tax professional, you still have substantial work to do before filing your year-end taxes because the accuracy of your return depends on the information that you provide to your accountant.

Get Prepared

Waiting until the last minute to start pulling together documents and digging through your financials will only make tax time more painful. Instead, start getting ready now so that you can go into the new year knowing that your business is ready to file 2017’s taxes.
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• Make Estimated Payments 
  
  If you are following best practices, you are making regular estimated tax payments. This makes paying taxes (slightly) less painful.

 

• Maintain Separate Accounts 
  
  Keep all personal and business accounts separate to avoid any confusion when it comes time to file taxes. It will make your accountant’s job much easier if there are no overlaps between these sources of funds.
  
  Some business owners also choose to have a business savings account solely for tax payments. The money in this account is considered a cash reserve specifically used to pay taxes. This is a good way to set profit aside so that it will not be mistakenly used for expenses or towards investments.
  
  
• Keep Track of Expenses 
  
  Recording expenses as you incur them throughout the year is much easier than trying to enter them all at the end of the year. Small business accounting software can help organize your expenses, so they are easier to find and reference later. Spend a few minutes each day uploading and verifying receipts to avoid having to do all of your expense-related work at the end of the year.

 

• Double Check Entries
  
  When it comes to accounts payable and receivable, take the “Santa approach” to anything your employees have entered. Double check entries to ensure that they are complete and correct, and attach receipts digitally, where possible. It is always easier to spot a problem and correct it immediately than it is to go back and try to find and fix it later.
  
  
• Eliminate Ghost Assets
  
  Identify which assets are missing or unusable and determine if they should be written off. Having ghost assets on your books hurts your inventory figures and asset balance.
  
  
• Maximize Deductions Ethically
  
  Deductions are incentives the government gives to get your business to do something that is desirable for the overall economy. Take advantage of them. Maximizing your deductions reduces your tax burden, resulting in savings that can be put back into your business to fuel its future growth.
  
  Always take an ethical approach to tax deductions – only take what your business has legitimately earned! Do not try to “get creative” when it comes to deductions. Penalties can be costly. 
  
  If you are planning on taking a home office deduction for your small business, know what you are allowed to deduct in the way of utilities, repairs, mortgage interest, homeowner’s insurance, and so forth. Determine how much of your home is set aside for the regular and exclusive use of your business and use that area size to aid in your calculations.
  
  If you use your vehicle for business purposes, you can deduct mileage and repair costs. However, always be honest with these deductions, especially if your car is primarily used for personal use because you will not be able to deduct those expenses as well.  
  
  
• Prepare for an Audit
  
  No one wants to think about being audited, especially if you are using a tax professional to prepare your taxes. However, audits can happen at any time for any reason, which means that you should always be prepared. Get everything ready that you would need to provide to an auditor and keep it on file. It is always better to be prepared for the worst and not need it than to need it and not be prepared.
  
  

Provide Important Materials

Always equip your accountant with timely business financials such as:

• A Balance Sheet
• An Income Statement
• Cost of Goods Sold (COGS)
• A List of Business Expenses (such as utilities, computer expenses, insurance, office supplies, professional fees, travel, meals and entertainment, and mileage) 
  
  These documents will be an aid when preparing your taxes as well as identifying opportunities to reduce your tax contributions. If any of these documents are missing, incomplete, or incorrect, notify your accountant immediately to avoid issues later.

Submit Forms

A third-party tax preparation specialist should have a working knowledge of which forms to use. However, if you are choosing to take a risk and file your own taxes, you will need to locate and submit the correct forms yourself.

Use this quick guide:

• Sole Proprietors and Single-Member LLCs – Use a Schedule C attached to your personal income tax return
• Multi-Member LLCs - Use a Schedule K attached to your personal income tax return
• Partnerships – Use a Form 1065
• Corporations or LLCs being treated as corporations – Use a Form 1120
• Any business that employs contractors will need to issue 1099 Forms

Now that you know how to prepare for the upcoming tax season, do not let the holidays sneak up on you. Get started now to ensure that your business will have a bright start to 2018.

If you need tax prep help, contact us today. We work with small businesses in Washington and Oregon to ensure they are prepared for tax season. Let us help your business!