Tax season can be an extremely nerve-wracking time, but this does not have to be the case! Starting your tax preparation before December 31st is just one way to prevent stress. Below are 5 tips for surviving tax season.
Step 1: Make Sure Your Books are in Order
Making sure your business transactions are recorded properly is one simple way to avoid stress. Record all business transactions in a general ledger so everything is easy to locate, well organized, and accessible. Lost transactions can cause even the most easy-going person to lose their cool.
Double check to ensure that your books are balanced! Programs like QuickBooks should have updated your books automatically. To be safe, you should double check to make sure that it has been updating accurately. If you are using double-entry accounting, the sum of all the credits should be equal to the sum of all debits. This goes hand in hand with making sure your books match your bank records.
It is possible to miss some deductions. Say Bookkeeping highly recommends separating your personal and business expenses. This is an easy way to prevent a headache caused by having to sort through expenses when they are all mixed up in one account.
Step 2: Sort Through Any Year End Tax Moves That You Can Make
The IRS will allow you to deduct money that someone owes you but cannot pay you back from your taxes. Try to keep a detailed account of these because the IRS will make you prove it.
Minor business repairs can also be tax deductible. If you plan on making minor overhauls you might want to make them before December 31st.
If you’ve invested in a new line of business and have not spent over $50,000 you should ask your accountant if you are able to make a deduction of $5,000.
Step 3: Set Aside Enough Money to Pay Your Taxes
Setting aside tax money, even if you do make estimated tax payments through the year, is another easy way to avoid unnecessary headaches. If you aren’t sure how much money you will owe in taxes, set aside 30% of your earnings or 30% or each paycheck to ensure you are covered. You should also keep your tax money in a separate bank account to ensure that you are track.
Step 4: Keep Up to Date with Current Tax Reforms and State Specific Tax Laws
Tax cuts and reforms can impact the amount of taxes that you and your businesses owe. The Tax Cut and Jobs Act was passed and took effect in January of 2018. We have included some information about how it can affect you.
- C Corporations get a 21% flat income tax rate.
- Pass-through entities get a 20% tax deduction. This can be applied to your QBI (Qualified Business Income).
- You do not get write-offs for games of golf or other entertainment expenses.
Step 5: Preparing for the Future
Make sure all of your books are up to date throughout the year. Make sure to continuously set aside money, whether it be per month, per week, or any set payment plan. Every little bit counts, and every dollar should have a job, especially around tax season.
Written by Eve Rosen
Edited by Allisson Fowler