The second half of April marks a major milestone for most small businesses. You’ve filed your taxes, and you can get back performing the countless other tasks needed to run your business. Not so fast: what about next year’s taxes?
The end of this year’s tax season marks a beginning as much as an end. This is the time to start thinking about what you need to do to ensure that you will be well-prepared to make next year’s taxes less stressful — and to help make decisions that can grow your business and reduce your taxes.
How to Take Action Now and Throughout the Year
You probably carefully weigh every spending decision without recognizing that taxes can directly impact many of your choices. Taxes are fresh on your mind right now, making this a great time to develop the habit of including them in your everyday thinking. Here are some concrete ways to pursue the road to lower taxes.
Start with a Post-Mortem of Last Year’s Tax Filing
A quick review of your own tax return might cause certain numbers to jump out. For example, do business expenses seem too low? Perhaps you avoided recording seemingly minor expenditures, leaving more tax write-offs on the table than you realized.
Even if you don’t have the expertise to reveal shortcomings in your last filing, your tax preparer or advisor can often identify obvious and concealed areas in need of attention. If the topic doesn’t come up, you need to ask.
You can’t plug holes that you don’t recognize. This type of analysis can help make sure that next year’s return will be more solid. And, if the holes are more like craters, then perhaps you need to file an amended return.
Review Your Current Accounting Needs
Perhaps you’ve been handling your own taxes to-date, or you recognize that your business requires more services than your current accountant provides. If your post-mortem revealed that you’ve been too busy to enter your numbers on a timely basis, maybe it’s time to hire a bookkeeper to keep you on track — as long as you understand that bookkeeping and accounting services are valuable for very different reasons.
Hiring a bookkeeper helps ensure that anything from an emergency purchase of paperclips to an out-of-town business lunch is promptly recorded (as long as you establish good communication methods to get the information to the bookkeeper). Full-service accountants, on the other hand, use your bookkeeping data to create accurate financial reports. And, they also analyze the numbers to help you understand your current tax status and areas in need of improvement.
Just as important, a good accountant stays on top of changes in the tax laws. Whether they volunteer this information or you have to periodically ask for it, up-to-date knowledge can make a major difference to vital business decisions throughout the year.
Know What You Need to Know
You may be an expert plumber, or you know every required keystroke that goes into developing an awesome software product; but you probably don’t precisely know what goes into the preparation of an accurate tax return. Don’t feel guilty; few business owners can recite the full list. But, most business activities affect your taxes in some way, and you need to know which ones apply to your business.
The helpful small business tax prep checklist from H&R Block is one place to start acquainting yourself with the numbers that you need to know before tax time rolls around again. Of course, a good accountant can educate you on the specific numbers that apply to your business as well.
Keep Control Over Your Numbers Year-Round
One of the most important parts of tax preparation is making sure that you make bookkeeping entries promptly so that you have up-to-the-minute information readily available anytime that you need to make decisions, such as identifying the right times to make large purchases or offer discounts to your customers.
We’ve already discussed the potential value of bookkeeping services, but, before you enter the numbers, you still need to choose a good accounting system to set up the books.
QuickBooks represents about 95 percent of all small business accounting software sales, but buyers have many product choices within the QuickBooks arena. Of course, QuickBooks is not the only available brand, so check out our updated comparison chart before doing your research.
Find Ways to Make Entries Easier to Maintain
Gone are the days when creating an invoice requires a separate bookkeeping entry. When you choose compatible software systems, the numbers automatically flow to your accounting software from invoices and other sources. But, this doesn’t mean that you have to stick with one software provider for all of your applications.
Take a look at our Intuit Marketplace page to get an idea of the types of software that can interact to make entries easier to maintain. You will learn that Intuit products interact with a large variety of applications from other software vendors as well. So, whether you process documents from your office desktop or a smart phone or tablet app while on the road, you won’t have to perform data entry as a separate step.
Don’t Let Potential Tax Savings Outweigh Longer-Term Decisions
It’s important to consider taxes when making business decisions, but it’s equally important to maintain a perspective that includes the longer term. Sure, a tax write-off might be tempting when you consider buying pricey equipment that you don’t need quite yet. But, how much will you spend to run and maintain it? Plus, if your purchase depletes current cash on hand, what happens if an unexpected emergency requires funds during the year?
Tax planning is only one part of a good financial strategy. You need to have a comprehensive plan that tells you where you’re going in all aspects of your business.