Those of you who already filed your U.S. corporate tax returns earlier this week are probably breathing a big sigh of relief that tax time is over. For small business owners or entrepreneurs who plan to file as an individual (sole proprietor), you have about three more weeks to get everything in line before the April 15th deadline. According to the official U.S. government website, the average American spends about 25 hours preparing their tax return. The average small business owner spends about half this time- only 12 hours. Inadequate preparation can result in mistakes, which can lead to penalties and fees down the road. Tax season presents a great opportunity to evaluate your year-round preparation strategy. Here are a few tips to make next tax season a little less taxing:
Keep better records.
Whether you file your taxes using an online program, in-person preparation service, or hire a CPA, the right documentation is a must. You’ll need accurate sales numbers, employee pay amounts (in wages, tips, commissions, bonuses, etc.), expense documentation, and other important information. One of the best ways to keep records is to generate payment and sale information electronically using a standardized system. If you use a POS system with reporting functions, you’ll already have accurate records of inventory, sales, and profits without having to dig through filing cabinets or piles of paper.
Hire a payroll company.
This one also falls in with the record-keeping idea above. Payroll services typically can do all of the year-round work for you. From computing employment taxes, keeping records of employee status (W-4 or 1099 independent contractor) to tax withholding amounts and providing accurate payroll registers for each pay period, outsourcing payroll can make your tax time much easier. Most of the businesses that use our service to look for payroll outsourcing do so in order to keep accurate records of employee pay. The cost savings of hiring a payroll processing company is also an extra benefit- in addition to tax savings, you’ll also save the time and money you would have spent preparing payroll documentation yourself.
Don’t do your own taxes.
In 2008, over 93% of small business owners surveyed relied on outside help for tax preparation advice. But since sole proprietors file as individuals, it’s difficult to measure how many business owners undertake filing taxes all by themselves or how many just use an accounting service like TurboTax or H&R block during tax time. Enlisting the help of an accountant all year long is a great idea- not just for accurate tax preparation, but for tax planning and savings, too. The number-one sited reason for not hiring a tax professional is cost: most businesses can’t justify spending several thousands of dollars on a service that they think they can do themselves. This justification can actually keep you from significant savings that a tax planner can suggest. Most small business owners find that ongoing accounting services more than pay for themselves in tax savings.
If you’re not ready to file, get an extension.
Filing a late return is far better than filing a mistake-laden one. If you file your taxes as an individual and are unprepared to meet the April 15th deadline, download IRS form 4868 and request an extension. Remember, you still have to pay any taxes you owe by the deadline to avoid fees and penalties- once you file your return, you’ll get a refund if you have overpaid.
Remember, if you make mistakes in your return or learn of additional tax liabilities or savings, you are able to amend a tax return after it is filed. (If you owe more than you’ve claimed, the IRS will amend the return for you.) The tips in this article are just to get you started on your strategy for next year- for specific advice about tax savings for your business, you should consult a tax professional.