How to Make Tax Time Easier Next Year
Isn't tax time the most wonderful time of the year? Yeah, right. During tax season, I know some small business owners who amaze me with their ability to procrastinate. They cram weeks of tax preparation work into days. Tax time reminds me of college, when some people ignored studying and homework all semester long. Then, they would suddenly panic and start studying vigorously the night before the final exam. It’s no surprise that some of these people are now in business for themselves. Maybe you know someone like that… What makes tax time so painful? Here are three of the top reasons: Writing checks to multiple government agencies. We know we must eventually write checks to multiple government agencies—well, that just stinks. So we delay writing the checks, which unfortunately means we delay our tax work. While it makes sense to delay writing the check until the deadline, what are we doing to ourselves when we delay the tax preparation work too? Procrastination. Whether we’re preparing taxes or studying, some of us need the pressure that procrastinating provides just to begin our work. If only we could find a way to procrastinate just a little less next year! Mandatory tax deadlines. We entrepreneurs generally don’t like being told what to do. Hey, it’s one of the reasons why we’re entrepreneurs. Tax deadlines tell us what to do. The March 15th deadline (for corporate tax returns) and April 15th deadline (for personal tax returns) are non-negotiable, unless you want to pay late fees. We can, of course, file a request for a tax return extension (but not a payment extension) by completing the appropriate forms. But does an extension simply make us more compliant tax procrastinators?
Tips for Beating Tax Woes
Let’s say that this tax year has been unusually painful, and you’re promising yourself you’ll do better next year. What do other small-business owners do to make tax preparation easier? Stay organized. Something as simple as maintaining a separate file for each major tax area can go a long way. Try focusing on bank statements, accounts receivable, inventory, accounts payable, fixed assets, and loans, to name the biggies. Keeping this information in its own special folder (paper or electronic) can provide some comfort, and even confidence, at tax time. Reconcile your bank statements. Accurate tax return preparation begins with a final year end reconciled bank statement. Otherwise the return must be redone. Since most of us need to know our cash on hand to operate our businesses, it makes sense to habitually reconcile each bank statement within a few days after the end of the month. Use tax software. Can you imagine preparing your tax returns manually? Forget about it. Find tax return software you like, so preparing your taxes can be easier and maybe even fun. You used to enjoy puzzles, right? The three top online tax software products for small businesses in 2015 were Turbo Tax, H&R Block, and Jackson Hewitt. Hire an accountant. If you truly detest numbers, or you feel you don’t have time to do your own taxes, this is the best option for you. As a bonus, your accountant keeps you informed of tax deadlines well in advance. Anecdotally, working with an accountant you like makes the tax work… well, more enjoyable. Should you check your accountant? Heck yeah! It’s OK to delegate your tax responsibility to a third party, but don’t abdicate it like some of us do. A great way to check your accountant is to maintain a checklist. Keep a year-end tax-return checklist. This helps you manage your internal tax return preparation and your accountant’s results. I suggest starting with a list of four items here:
- Compare the schedules of balance sheet accounts with the return.
- Make sure that you (not just your accountant) know the names and numbers of the mandatory tax forms for which you are liable.
- Check the biggest numbers on the return—like sales, cost of goods, rent, payroll, total assets, and total liabilities.
- Conduct a sanity check by comparing your internal financial statements and financial records with your accountant-prepared tax return. Accountants make mistakes sometimes, just like us. Plus, won’t you feel better about your taxes if you check your accountant’s work?
What are the one or two changes you can implement now to make tax time easier next year? Perhaps you need to manage our reluctance to write checks for taxes or your hatred of deadlines. Reducing procrastination might relieve some tax time pressure. Most of us can find a way to improve our tax organization. What can you do to make tax time easier for you next year? Copyright © John McAdam 2015. All Rights Reserved.