Tax season can be confusing and stressful. While many factors affect your tax rate and refund, one thing that you can control is proper preparation. In this article, we are going to share some tips on how to prepare for tax season.
General advice on how to prepare for tax season
Whether you have a business on the side or as a full-time job or just filing a personal income tax return, these general tips on how to prepare for tax season will make the tax filing process a lot more enjoyable and less stressful for you.
Get professional help
If you have more documents than just a W-2, it is recommended that you go to an accountant or professional tax preparer to get your taxes done. These specialists know the laws and the rules than you (even with research) and they can get you more deductions that you might not even know about. So, if your taxes are complicated or you feel like you need assistance, it worth spending that money and getting a help of a professional. At the same time, choose your tax preparer carefully and be wary of those who promise bigger refunds. Keep in mind that no matter who prepared your tax return, you are responsible for what is on it.
Organize your documents
To make the tax filing process stress-free and as smooth as possible, have all the necessary documents, including SSN and Tax ID for dependents you are claiming and all of your income from all sources, on hand and well organized. Consult with your tax professional on what you will need and consider creating a checklist. It will not only simplify your life, but your accountant will also appreciate it (and you might save some money). You do not have to know how to properly categorize all your documents for your taxes, but you can still group them together by the same type of documents – all your receipts, W-2, 1099s, and so on.
Bring all the business documents
If you have other income sources besides your job, make sure to take all relevant documents to your CPA or EA when you take all your personal files. These would include receipts for your expenses, your 1099s, other business income, etc. Just like with personal documents, keep your business documents together and organized by category to the best of your ability. This will allow your accountant to get a full overview of your business and include everything relevant and get you all the deductions that you can.
Keep security and tax scams in mind
The most important advice we can give on how to prepare for tax season is to be thoughtful and cautious about who you choose as your tax preparer and provide your information to. During the stressful tax season, there are many scammers who try to email, text, or call you claiming that they are the IRS or the US Treasury. Remember the IRS will only correspond with you via US mail. Do not share your SSN, email password, IRS PIN, and such sensitive details to avoid frauds like identity theft.
How to prepare for tax season as a business owner
Here are more tips that are more specific to business owners.
It might be obvious, but if you want to know how to prepare for tax season in the best possible way, then the first tip would be to actually start bookkeeping and do it diligently. Many entrepreneurs find themselves scrambling every year trying to calculate all their expenses and money they earned to be able to file their taxes. Bookkeeping serves as a groundwork for making good business decisions, filing taxes, and other functions. Getting a bookkeeping system will make the process much easier.
Have a bank account for your business
Our advice on how to prepare for tax season as an entrepreneur and a business owner will not be complete without mentioning that you should have a separate bank account(s) for your entrepreneurial activity. This is one of the biggest pitfalls that many business owners come across, so take this simple step to avoid it. Categorizing all the items when it comes time to file your taxes will be less time-consuming and frustrating.
Review your books
Reviewing your books is another step you should take. Take a look at your profits, your spendings and how they are categorized, and review your financial trends. The IRS has a computer system that analyzes the trends of a business, so if your income or expenses have drastically changed, you should be prepared to explain to the IRS why. In addition, keep in mind that using bookkeeping software does not guarantee accuracy because these records will only be as accurate as the information you entered. Therefore, entering everything correctly and double-checking is key to getting your numbers for the taxes right.
Track expenses, inventory, and other items
Depending on what you do, you can have a whole range of expenses, such as operational expenses, personnel expenses, legal expenses, and so on. Remember about those easy-to-slip items, such as office paper and printer ink and miles driven for work. If you have a home office, you would want to know the square footage of your home and office space, as well as your utilities and insurance costs. If you have inventory, you would want to know how much you currently have and any recent inventory purchases.
This article on how to prepare for tax season is for informational purposes only and should not be taken as legal, business, or tax advice. Consult with your tax and/or business advisor regarding this topic.