We’ve barely entered the new year and good Professional Employer Organizations (PEO) are already talking about tax season. It may seem a little presumptuous, but every good HR pro knows between lost papers and wayward employees, a business is bound to hit a few snags along the way so best practice is to start preparing early collecting information to allow yourself plenty of time to fill in any missing data or tack down paperwork.
As we mentioned above, there is no benefit to delaying your preparations. Yes, the deadline IS months away and you surely have plenty of things that can fill your time in the interim, but the reality is that you should be preparing for tax season on a year-round basis. Even being sure to collect the correct forms (and file them correctly) can make a huge difference in your stress level come April.
Some folks just like the feel of physical paper documents, but when you consider all the chasing down you have to do to procure said documents – not to mention the filing and storage – you’ll quickly realize that having an online system makes life so much easier. Yes, there is a certain learning curve associated with going digital, and there can certainly be a few bumps along the way, but it will save you so much time in terms of being able to find the document you need, run the necessary analytics, and perhaps even file directly from the platform that it is more than work the upfront struggle. Make 2019 the year you take the plunge.
Whether you have a trusty old filing cabinet or a swanky online system, you’ll need to start pulling the correct documentation in order to prepare for tax season. These forms include:
- Last year’s tax return
- Payroll documents
- Bank and credit card statements
- Accounting documents
- Partnership agreements
- Depreciation schedules
To get a full view of your income and expenses, you’ll also need to retrieve: sales records; asset purchase agreements; payroll documents; insurance premiums; contractor payments; information on office/retail space rent; office supplies and equipment; transportation and travel expenses; advertising costs; depreciation schedules; documents from your bank to show interest, dividends, etc; and any other documentation regarding the financial picture of your company.
In addition, you’ll also need to make sure that you pull the correct tax forms depending on the type of business you have (so, if you’re a corporation use Form 1120, S corporation uses 1120S, partnership uses Form 1065).
Know Your Deductions
Did you know that depending on the size of your small company, you may be able to deduct a significant amount of your overhead cost? While what can be deducted varies significantly depending on the structure of your business (LLC versus corporation versus partnership, etc), almost all small businesses are eligible to deduct vehicle expenses (either in mileage rates or standard expenses); business insurance expenses (check this IRS link to see if your company is eligible); and even rent for your retail/office space and any equipment that you might lease in order to perform tasks associated with your business. There are many more potential deductions and it’s often tricky to determine if you’re’ eligible, which brings us to our next point…
Seek Outside Help
When you’re a small business owner, you are often expected to be the jack of all trades. While wearing many hats is an important part of small business ownership, knowing when to seek advice from outside experts such as human resource professionals who understand the laws, what is necessary for compliance and how to prepare for tax season is equally important. Contact a trusted advisor who can school you on the various changes to the tax codes—this year, in particular, there have been myriad changes to the corporate tax rate that may complicate matters—identify any outstanding liabilities, and potentially even help identify any areas where you may be able to reap greater returns. Yes, it’s another expense, but it’s actually one that is tax deductible!
Don’t Raise a Red Flag
There are a number of common pitfalls that will cause the IRS to flag you for further investigation. These include:
- Your reported income on your 1099-MISC forms doesn’t match what you’ve paid in
- You misclassify employees as contractors
- You incorrectly deduct a home office
- Your deductions exceed your income
- You’ve commingled personal and business expenses. These are just the most common, but there are many more that you can run afoul of without ever intending to – this again underscores why it’s so important to loop in a professional.
Go on the Record
In the run up to tax season, one of the most important tasks for a small business owner is to go through their record keeping with a fine-toothed comb. It is best to catch your own mistakes than have the IRS do it for you, so now is the time to be brutal and tie up any loose ends that could land you in trouble down the line. You’ll also want to make sure that your filing system is up to snuff and that you are correctly and securely storing the data you need.
Don’t Miss a Deadline
Starting now makes it a lot less likely that you’ll blow through a deadline. And, if you’ve ever messed with the IRS, you know that they take their deadlines very seriously and just love to make life difficult for anyone that doesn’t fall in line. However, if you do believe you are going to miss a deadline and need more time, you can fill out Form 7004 to request an extension for your filing. It should be noted that it won’t delay your deadline for making a tax payment, so be aware that it applies to paperwork only.
There’s no denying that preparing taxes is time intensive, but it is a necessary part of doing business and one that you will always face. By preparing ahead of time – or even year-round as we discussed in the top tip – you can make it easier on yourself (and your company) and emerge relatively unscathed come filing day.
A PEO can help you to prepare your business for tax time.