Episode 020 – 6 Steps for an Easier Tax Time Next Year
Recorded: April 20, 2022
Released: April 20, 2022
Intro by Clive Castle
Sounds by ZapSplat
Few people like tax season. It saps your energy trying to locate your documents and research and fix discrepancies. In this episode, we explain 6 steps to help make tax time easier for you the next time around. Find the transcript of this episode below.
Hello and welcome back to The Better Bookkeeper Podcast. I am your host, Patrick Donovan, President of Cape May Counting House. Did tax time get you stressed this year? Have you now breathed a sigh of relief that it’s over? I know what you mean! This time of year can be very, excuse the pun, taxing. But in this episode I will provide some tips on what you can do going forward so that next year won’t be so bad. For a transcript of this episode, please visit thebetterbookkeeper.com/020. I’ll see you on the other side.
Tax time makes most people cringe. You would be hard-pressed to find many tasks that people absolutely loathe, but preparing for taxes is pretty high on that list. So what can you do to make this whole process less stressful for you next year. For you small business owners, you have your plate full of tasks to generate revenue, there’s little time to sit down for hours to organize, prepare, and complete your filing. What can you do?
Well, there are quite a few things that you can do.
#1: Follow any recommendations that your accountant has provided to you this year. Why wouldn’t you? Your tax professional has just gone through your financial statements trying to prepare your tax return. The suggestions they offer are coming from the person who just prepared your taxes. They may have seen some categories with amounts that don’t make sense which could be a result of transactions being entered incorrectly. They may instruct you to reclassify certain transactions so that your records match what is on the tax return they just prepared. There may have been instances where they needed a receipt and you had to search high and low to find it, taking you away from generating that revenue. Make it easier on them which means less stress and headaches for you.
#2: Review your tax payment frequency. Depending upon the amount of your tax liability, you may either have to pay monthly or quarterly. Your accountant would be able to help you with this. If your liability has changed, you may need to pay taxes at a different frequency. Review this and prepare to make any necessary changes so that you don’t get hit with penalties and interest.
#3: Keep your business expenses separate from your personal expenses. This cannot be stressed enough. You have got to keep your business expenses separate. If your books are a jumbled mess of business and personal transactions this is a nightmare for your tax preparer. You might think that you’re the business owner so in the end it’s a wash. NO! The business is separate from you, it is a distinct operation. If something is a legitimate business expense it needs to be on the company’s books as a business expense. If you go to the store because you need some personal items and the only card you have on you is the business card that is not a business expense. You still need to show it in the books but this transaction should be recorded as an owner’s draw because you are taking money out of the business to pay for a personal expense. It’s not a business expense. If you purchase something for the business on your personal card then make a journal entry and record the purchase as an owner’s contribution. It is best to never use a business card to pay for personal expenses and never use a personal card to pay for business expenses. Sometimes it happens but this should be the exception and not the rule.
#4: Get yourself organized. Look at your accounting software for features that allow you to attach documents and receipts. QuickBooks Online, for example, allows you to take a picture of a receipt with their app and upload it into QuickBooks. Just review it in QuickBooks Online and the receipt gets attached to the transaction. If you or your accountant has a question about that transaction later, the receipt is already attached. No more scrambling around trying to find a receipt from a year ago. The same goes for bills. At the bottom of your transaction screen, on the left side, you will see an area where you can attached a document. It’s there so use it and save yourself time and headaches later!
#5: Have procedures and workflows in place to make sure that transactions get entered into your accounting software properly and consistently across all applicable team members. Establish workflows so that everyone on your team knows how tasks are to be completed, who needs to approve what and when, and who to go to in the case of an issue. You don’t want to find out the day before you supposed to send your documents to the tax preparer that there is a major issue. Work to ensure that everything is done properly throughout the year.
#6: Make sure that your files are backed up. You should perform a backup of your files and save that backup on a different computer than the one you currently use. That could be on a server, a different server, or even in the cloud. Backups should be done on a frequency that makes sense to your business. If you don’t have many transactions then maybe a monthly backup will work fine for you. If you have a ton of transactions daily you should consider backing up daily. The reason being, if your computer crashes, you will need to restore the most recent backup which will contain all of the transactions that were entered up to the date of the backup. So if you haven’t backed up your data in months, you will have to reenter all of those transactions that occurred since your last backup. Some online account software automatically backup your data. Check with your software publisher to see how backups are handled and if there is anything that you need to do yourself.
Following these steps can make tax time less of a drain on your sanity and put you on a solid footing throughout the year.
Just as a reminder, please check out our online courses at https://courses.thebetterbookkeeper.com and get 50% off with coupon code HALFOFF. Thank you for listening!