10 Effective Strategies For Surviving Tax Season As A Business Owner

Photo Credit: Adobe Stock

Tax season is rarely a business owner’s favorite time of year. However, staying on top of your finances throughout the year allows you to seamlessly navigate tax season like a professional. Preparing well in advance is the best way to set yourself up for success.

Keep reading for 10 effective strategies to implement this tax season as a business owner. 

The Importance of Tax Season

No one can avoid tax season. To stay out of trouble and ensure your business is running smoothly, you need to keep track of your finances and pay your dues. 

“Tax season might not be your favorite season, but it’s an important one. You want to protect your business at all costs, and filing your taxes is one of the simplest ways to do so,” says Emily Greenfield, Director of Ecommerce at Mac Duggal, a company that specializes in evening gowns.

If you’re new to entrepreneurship, we can’t emphasize the importance of staying on top of your taxes. If you get behind, it is much more challenging to keep your head above the water — and you could risk committing tax fraud. 

Prepping for Tax Season

Staying ahead of tax season is key to your business’s success. You shouldn’t wait until the last moment to gather the material to file your taxes. Instead, constantly organize and categorize your spending throughout the year. 

“I believe there is tremendous value in thinking ahead and coordinating both your tax and financial planning strategies,” says Judy Brown, Senior Financial Advisor at SC&H Group.

The more prepared you are, the easier it is to file accurately and on time. You can avoid mishaps by gathering information you’ll need throughout the year once tax season arrives.  

10 Strategies To Survive Tax Season

While preparation is key to a successful tax season, you can stay ahead of the curve in various ways. Consider implementing the following 10 strategies as soon as possible, and prepare to reap the benefits.

1. Hire an Accountant

As much as you want to prove that you are capable of handling tax season on your own, consider hiring a tax professional to help. Accountants work to gather all of your information and help you through the filing process. 

“There’s already plenty on your plate as a business owner, which means more opportunities for slip-ups. An accountant will handle the financial aspects of tax season for you so that you can feel secure knowing your tax filings are covered,” shares Justin Soleimani, Co-Founder of Tumble, a company for its washable rugs.

This is one of the easiest ways to survive tax season. If you are not a tax expert or are worried about completing your taxes, this will eliminate the stress and worry that comes with it. 

2. Understand Tax Deductions

Tax deductions and credits can greatly benefit your business, but only if you understand them. Learning which deductions you qualify for often requires independent research, and the more time you give yourself to explore, the better.

“Tax deductions and credits are never the same, year-to-year. Staying on top of them can be tricky, but they can significantly reduce the amount you owe, saving you a bit of money in the end,” explains Titania Jordan, CMO of Bark Technologies, a company known for its smartwatch for kids with built-in safety features, the Bark Watch.

Tax professionals can help you identify which deductions and credits you qualify for and can guide you through the process. Saving money is always a welcome boost to your business, leaving you feeling happier once tax season ends. Who knows? Maybe you’ll start looking forward to tax season every year.

3. Organize Your Material

Maintaining an organized and accessible record of your financial materials is a vital practice that can save you considerable time and effort, especially when filing your taxes. This includes meticulous documentation of your finances, payroll, and expenses, which will significantly streamline the report creation process.

“Carefully document and maintain every receipt, payroll disbursement, and business purchase,” recommends Jack Savage, Chief Executive Officer of Everyday Dose, a company that specializes in mushroom coffee. “While this may seem tedious, it is an investment that will undoubtedly pay off during tax season.”

Create a system early on in the year to track your expenses and other finances. When you have established a method that works for you, stick to it. 

4. Set Money Aside Throughout the Year

Setting aside about 10% of your monthly income to prepare for tax season is the rule of thumb. If you’re able to do this, you will already have money ready to start paying what you owe. 

“New business owners can find themselves taken back when they realize the amount they owe in taxes. Payment plans are helpful, but if you don’t have money set aside, it may feel like you have to work twice as hard,” says Brianna Bitton, Co-Founder of O Positiv, a company known for its MENO menopause supplements.

Setting aside money is part of preparing throughout the year. The goal is to take enough precautions to set yourself up for success. 

5. Claim All Income

It may seem simple, but you must claim all your income to the IRS. The IRS gets a copy of what you make so they can double-check to verify that what you’ve claimed is accurate. If the numbers don’t match up, it will be a major red flag to the IRS.

“Reporting your income correctly will help you to avoid issues with the IRS. Even if you don’t receive a 1099 for work that you’ve done, report it. This will save you time in the long run,” explains Sarah Pierson, Co-Founder of Margaux, a company that specializes in ballet flats.

This process is much easier when you have organized your financial documentation. This applies to both federal and state taxes. 

6. Correctly Classify Your Business

You don’t want to pay more taxes than necessary. If you don’t classify your business correctly, you risk overpaying when tax season comes around. 

“When in doubt, consult with an attorney to better understand how your business should be classified. You avoid a lot of complications when you enter tax season under the correct classification,” says Joseph Chak, Director of eHobby Asia, a company known for its airsoft guns.

Before you start your business, read up on the different classifications and their tax benefits. Bringing in an expert will alleviate the stress of choosing incorrectly and paying for it later. 

7. Know Your Deadlines

Photo Credit: Adobe Stock

There are different deadlines for federal and state taxes. You should always stay ahead of your deadlines. However, if a worst-case scenario happens, it can help to know how to ask for extensions.

“A professional tax consultant will help you leverage any applicable codes to reduce the late penalties and fees associated with filing your taxes late,” writes Karlton Dennis, Business Development Manager at Karla Dennis & Associates INC.

Even though a deadline might seem far in the future, they can sneak up on you. Don’t risk missing a deadline because you think you have plenty of time. 

8. Boost Cybersecurity

Tax season also comes with tax fraud. There is a boost in cybercrimes during this time, and the best way you can protect yourself is to increase your cybersecurity measures.

“You don’t want anything to mess with your business during tax season. Create copies of your documents, store them in a safe location, and make sure all of your firewalls are updated and running smoothly,” says Ryan Woodbury, Co-CEO of Needed, a company known for its postpartum vitamins.

Cybersecurity is a year-round investment but is especially imperative during tax season. When you prioritize cybersecurity measures, you, your company, and your employees will feel protected. 

9. Come Up With a Payment Plan

Even if you put aside money throughout the year in preparation for tax season, you should have a payment plan in mind. There are several options you can choose from, including paying in full or over several months. 

“Choose a payment plan that works for your budget and won’t cause additional stress,” explains Daley Meistrell, Head of Ecommerce at Dose, a company known for its cholesterol supplements. “Paying in full may feel like the best option, but it’s not always feasible.”

There are options for a reason. Depending on what your finances look like and how much you owe, all that matters is that you pay it all eventually.

10. Separate Business From Personal Expenses

Some business owners, especially newer ones, might not think to separate their business and personal expenses. Opening an account that is directly attached to your business is one of the easier ways to do so and keep things organized. 

“You’re better off keeping the two accounts completely separate from the moment you open your business. Keeping your finances organized in this way will give a clear indication of what is a business expense when tax season rolls around,” shares Mike McNamara, CEO of Samara, a company that specializes in backyard homes.

You will save a lot of time reviewing your receipts and figuring out what should be claimed as a business expense. To avoid this issue, start your business with its own account and credit card. 

Getting Through Tax Season 

Tax season shouldn’t be difficult, but it can become a chore if you’re unprepared or organized. As the people around you complain about getting ready to file taxes weeks before the deadline, you’ll be happy to know your business is already in the clear. 

Written in partnership with APG

The post 10 Effective Strategies For Surviving Tax Season As A Business Owner appeared first on Haute Living.