Taxes are an inevitable component of the business cycle and one that seems all businesses will need to prepare for. Without effective tax strategies, your business may quickly find itself struggling financially or even having issues with the law. With proven strategies, on the other hand, your business can position itself for success and continue operating smoothly.
Taxes can be overwhelming, which is why many business owners make the decision to hire an accountant. However, with some patience and a willingness to look at the finer details, many business owners will be able to completely navigate the daunting tax landscape on their own.
“Mastering” your taxes is as much of an art as it is a science. To truly be successful, you will likely have to think about expenses, systems, and general business needs that are often overlooked during the ordinary course of business. Payment processing, for example, is a universal business need that many business owners tend to ignore. With an efficient and modern payment processing system in place, your business will be able to easily track changes in all accounts and also ensure that all funds are distributed to where they need to be.
In this article, we will discuss six ways that your business can prepare to have a truly flawless tax season. By keeping a close eye on the prize and keeping these crucial tips in mind, your business should be able to improve its bottom line while remaining within the law.
1. Organize All Financial Statements
One of the reasons many business owners struggle with tax season is that they are completely disorganized. If you don’t have a firm understanding of all cash flows accrued over the course of the year—including both incoming and outgoing cash flows—your business will quickly begin to find itself gasping for air.
Using a reliable payment processing portal is one of the easiest ways to track cashflows over the course of the year, and also make changes as needed. By having all relevant financial information in a single location, you will be able to easily determine your yearly net profits and, consequently, determine how much tax you actually owe. Furthermore, good bookkeeping practices will make it much easier to identify possible opportunities for deductibles.
2. Hire An Outsourced Payment Processing Partner
As suggested, payment processing is one of the most important components of running a business. If your business does not have an effective payment processing system in place, tax-related complications (and even legal complications) will be seemingly inevitable.
There are quite a few different ways that an outsourced payment processing partner can have a positive impact on your business. These businesses will not only reduce the cost of issuing a single payment (which, in some cases, can be as high as $10 per payment), but they will also make the entire process much easier. Furthermore, they will be able to categorize all cash flows in a way that will be useful come tax season.
3. List All Deductible Expenses
Deductions can have a tremendous impact on how much money you end up owing the government. At the household level, most individuals choose to utilize the standard deductible, which—as of 2020—stands at $12,400 for a single individual. However, because so many business expenses can potentially be deducted, businesses usually have a much more complicated tax situation at hand.
There are seemingly countless different small business tax expenses you may want to consider taking advantage of. Expenses such as vehicle expenses, rent for an office (even a home office), marketing, office supplies, and many others can all effectively reduce your total obligations to the government. If your business has a complicated financial situation, you may want to consider hiring an accountant or some other type of advisor. However, what remains abundantly clear is that tracking and utilizing deductions is one of the most effective ways your business can improve its bottom line.
4. Review Recent Tax Law Changes
The tax code is constantly changing, which is why it will be crucial for you to stay up to date. Some of the most important recent changes include an increase to the standard deductible, a wider array of tax deductibles to choose from, and the introduction of a category known as qualified business income (QBI).
Another reason to pay attention to the law is that, simply, it is legally required for all tax filers. In the event that you are audited, ignorance of the law will not be considered a legitimate excuse or defense. Again, if you are uncomfortable handling all of the nuances of taxes or tracking payments on your own, you should probably hire an outside expert.
5. Identify Accounts Payable And Accounts Receivable
From both a tax and a business perspective, accounts receivable are distinctive from revenues received. Furthermore, accounts payable are distinctive from your expenses paid. When filing your taxes or creating financial statements, you will need to be sure to distinguish at what point in the payment process each of your accounts currently stands. The easiest way to do this is through the use of a payment processing portal that automatically generates these reports for you.
6. Create A Timeline—And Stick With It!
Lastly, the most important thing you can do when preparing to pay your taxes is to create a plan that you can actually stick with. Tax Day (April 15) often creeps up pretty quickly, which is why it is crucial to begin planning in advance. What day to hope to actually pay your taxes? When do you plan to generate all of the corresponding financial reports? Who will you need help from and when do you plan to contact them? By answering these essential questions, and many more, you’ll be much better prepared to master your taxes.
Before you begin preparing your taxes, pause for a moment and take a deep breath. While taxes can be very overwhelming, they can also be effectively managed. By keeping these simple tips in mind, you’ll be ready to have your best fiscal year to date.