For all startup and small businesses, tax season is often one of the most stressful parts of the entire year. However, for companies filing for the first time, it’s even more challenging. According to a recent study, approximately 40 percent of business owners have stated that tax preparation and bookkeeping were the absolute worst parts of owning a small business.
While this is true, with proper consideration, the frustrations of tax time can be reduced significantly and possibly avoided altogether. A bit of organization and taking the time to find details at gudorftaxgroup.com about what a business owner can do to minimize the issue can help substantially. There are also a few tips that will help startup companies with taxes found here.
Get Organized First
Getting ready to file business taxes is a year-round process. Deductions or expenses that the business plans to claim need to be verified through the company’s record-keeping. This verification involves keeping track of every invoice and receipt that is received during the tax year.
Not only will records of assets purchased help to calculate depreciation, but they can also help ensure a company receives the maximum deductions. All this documentation can be kept in physical files or stored digitally. There are numerous programs and apps available that let businesses upload receipts and keep them organized, which eliminates the need for physical storage or unneeded paperwork. There is other accounting software that gives users the ability to attach files in the software, making it much easier to organize and store the documents.
Keeping contractor and employee tax information available is going to make it easier for the startup company to issue W2s and 1099s. By practicing organization with tax documents through the year, it will prepare the business for tax season and ensure they can handle an IRS audit.
Keep Accurate and Updated Financial Statements
While regularly updating a business’s financial statements is beneficial for tax purposes, it’s also beneficial for other business processes. These statements show the overall health of the business while providing information on operating revenue, liquidity, and profit margins. Proper financial statements are invaluable resources to give a company’s tax preparer and generally help to streamline the filing process.
Make Detailed Recordkeeping Easy with Use Accounting Software
While a new startup may be focused on growing the business, it’s also important to establish proper bookkeeping practices from the beginning. The good news is there’s no shortage of accounting software to help make this easy.
There are some accounting software providers that offer options that cater to a business’s budget, the style of the company, and the industry. The proper software can make a huge difference when it comes to overall financial management. There are some options that can help with other parts of the business, too, such as automated billing and inventory management.
When using accounting software to track expenses, it’s important to remain as detailed as possible. Entering transactions weekly or daily can help ensure everything is properly categorized while the information is still fresh in a person’s mind. The process of reconciling credit card or bank accounts every month, when the statements arrive, will make sure that records remain updated. By implementing due diligence with recordkeeping, a person can run accurate financial statements, catch any discrepancies between the bank records and accounting system in real time, and save both time and money during tax time.
It is important to keep track of a person’s personal and business expenses separately. This is a mistake that is seen with many startups and small businesses. Sometimes, a small business owner will spend most of their time and all their money on the new venture, which causes a merging of accounts. By maintaining separate accounts for personal and business use and by tracking expenses carefully, this confusion can be avoided. Additionally, maintaining separate financial records is usually a requirement for some business types, like corporations and LLCs.
Know What to Expect
For financial management, the more informed a startup company owner is, the better. At the very beginning, it’s crucial to make sure the right entity type has been selected for the business along with the proper tax filing status. It’s a good idea to conduct research on state and federal tax responsibilities, including corporate taxes, sales tax, and payroll tax, which will help reduce unpleasant surprises when tax time rolls around. Remaining informed about these deadlines and dates is going to reduce stress and make sure the paperwork is ready when it is needed.
State and federal websites are available that offer an array of resources for startup businesses. For example, on IRS.gov, there’s a guide to deduct business expenses. Some state agencies offer complete start-up kits for new business owners while providing detailed listings of the tax credits that are available. There are some accounting software providers that offer resources for business owners to help with general bookkeeping tasks and questions. They also offer other services, like live support, training, webinars, and an array of other information about tax forms that apply to a specific business.
Hire a Professional for Help
It doesn’t matter how well a startup company maintains their financial records or how prepared they are for tax season, it’s never a bad idea to have the company’s finances reviewed by a tax professional before submitting them. There are several CPAs available that have first-hand experience with the intricacies that are involved with tax preparation and planning for startup companies.
When it comes time for a startup company to file business taxes for the first time, there are more than a few factors that must be considered. The information here provides some insight regarding what and when to handle what needs to be done. Be sure to keep this in mind and reach out for help from the professionals to ensure everything is done properly, accurately, and there will be no issues with the tax return when it is finally filed.