This is a Guest Post by Cameron McCool from Bench for ChrisRonzio.com
Taxes are the last thing you want to think about during the holiday season. But as soon as we enter the new year, Tax Season will be upon us.
To help, here are five simple things you can do this month to take the stress out of filing your next business tax return.
1. Get Organized. Stay Organized.
If you’ve ever faced a hellish pile of receipts and disorganized finances at the end of the tax year, you’ll know the value of keeping your finances organized. Use these simple tricks to keep your records organized throughout the year:
Evernote, ShoeBoxed, or Doc Scan Pro are great tools that allow you to scan and upload receipts automatically to an online folder that can be accessed by others. Sharing receipts with your bookkeeper and/or accountant becomes as easy as emailing them a link to view your online folder.
Don’t Commingle Finances
Pay all business expenses with your business credit or debit card. Sole Proprietors, make sure you set up a business bank account; having to locate and separate business expenses from your personal business account is a special kind of hell you can easily avoid.
If you have employees, you may have made expense reimbursements over the year. You’ll need to collect the receipts and create a report that documents the reimbursements. While the IRS requires you to substantiate any expense over $75 by holding onto the receipt, we recommend that you hold onto receipts for all business purchases, just to be on the safe side.
2. If you worked with any independent contractors, fill out these forms
If you paid any single independent contractor more than $600, you’ll need to give them a 1099 to fill out. The deadline to submit these to your contractors is January 31, and you must also send this form to the IRS by February 28, so read up on the difference between employees and independent contractors to be sure you’re submitting the right paperwork.
Contractors also need to submit a W9 to your business. The W9 is a request for the worker’s taxpayer identification number. The W-9 (PDF) should be kept in your files for four years for future reference in case of any questions from the worker or the IRS.
If you hired a foreign independent contractor or business, they’ll need to fill out a W8 form, of which there are four different types.
3. Deductibles: Determine Personal vs Business Use
Some deductible costs, such as your home office, your vehicle, or your cell phone, can be used both for business and for personal reasons. These costs are deductible based on the percentage you use the item for business.
For instance, if you only have one cell phone and it gets used for business and personal calls, you can only deduct the percentage that it’s used for business.
Calculate what portion of deductible items you’ll be claiming as business related and make sure you have some evidence to back it up in case you’re ever audited by the IRS. For example, keep a mileage log book, or get into the habit of highlighting business calls on your phone bill to show how these deductibles were used for business purposes.
Calculating the percentage of your personal and business usage ahead of time will simplify the process when you submit the information to your CPA. If you manage this part of the process yourself, you’ll also save on having to pay your accountant additional fees to do it for you.
4. Get Your Books in Order
Whether you choose to self-manage your business bookkeeping, hire a bookkeeper, or use an online bookkeeping service to handle your business’ books for you, the best time to get your books in order is right now.
Bookkeepers are always busiest in the lead up to the end of the financial year. If you have a backlog of business bookkeeping to deal with, find someone to take care of it immediately.
As well as saving you a lot of time when preparing your tax return, up-to-date books are much easier for an accountant to work with, meaning you’ll spend less on accountant fees.
Accurate bookkeeping is also a requirement by both federal and local tax agencies, as your business’ books will be examined if you’re ever audited.
5. Automate Your Accounting
Chris recently shared how he automates his accounting process on the Bench blog. He uses a combination of Bench Accounting, Evernote, FileThis, ZenPayroll, and ScanSnap Evernote Edition Scanner, to automate most of the time-consuming tasks associated with monthly business accounting.
It’s surprisingly easy to set up, and it can save you around six hours a month (it can also save you from the added stress of having to spend extra time organizing and filing your expenses).
Check it out here and apply the process to automate your own accounting.
Cameron McCool is the Content Manager at Bench, the online bookkeeping service that pairs you with a professional bookkeeper and uses simple, elegant software to do your bookkeeping for you. Start your free trial and get your books in order by tax time.