It is officially that time again: the fourth quarter.
This is also known as the most wonderful “everybody panic because they just realized that they are going to have to do their taxes soon” time of the year.
Here is a truth that nobody wants to ever admit: if you’re diligent about tracking your details throughout the year, tax time isn’t all that big a deal. But if you’re reading this, you probably weren’t diligent. Here is how you get your act together so that your accountant won’t ever know that you procrastinated your tax duties.
That’s right, I said accountant. You didn’t really think I was going to advocate for you trying to do your own small business taxes, did you? Of course I wasn’t! Business taxes are incredibly complicated and take more than the 1040EZ you used to file when you were someone else’s employee. If you don’t already have an accountant on retainer, it’s time to start comparing accounting firms in your area so you’ll be ready to go once the calendar flips and you can start filing.
Here is what you need to do to make sure your accountant is properly prepared to complete your return.
Hopefully, you have been dutifully entering all of your company’s payments and expenses throughout the year. If not, guess what: whatever plans you had this weekend just got canceled. You’re going to be spending the weekend going through all of your business’s bank statements and emails and inputting those numbers into whatever bookkeeping/financial tracking system you’re using. And yes, it is absolutely fine to use a simple spreadsheet if you don’t want to have to mess around with software. What matters is that your accountant knows exactly how much you were paid and when as well as exactly how much you spent and where.
That’s right: you have to provide receipts for each of your expenses or you cannot claim them on your taxes. This is a long-standing rule of the IRS and for good reason! And before you panic, you probably saved way more receipts than you think you just don’t know it yet. If you don’t have a dedicated “receipt spot” go through your offices. You’ll find receipts tucked away in drawers, files, etc. After this, look through your emails for emailed receipts and payment confirmations. Download these confirmations/receipts into a single folder *and* print them out.
Refresh Your Memory
In addition to your receipts, you are going to need to know how old all of your office equipment is. This is because you can often claim the price of equipment depreciation as a tax deduction to relieve your tax burden. Make a list of each piece of equipment and when it was purchased. Put that with your receipts and your income/expense spreadsheets.
Prepping for Next Year
Once you’re ready to send everything off to your accountant, it’s time to prepare for next year so you won’t have to go through these frantic searches again. Here is what you will need to have set up by the time the calendar flips to the new year:
- Receipt Scanner. You can find dozens of mobile apps for this. Get into the habit of scanning receipts as soon as you get them. Make a note (both on the receipt itself as well as in the app) about what was purchased, the amount of the purchase, and the venue in which the purchase took place. This way you’ll have a digital backup and if the receipt is printed with evaporative ink you don’t have to worry about finding a totally blank page later.
- Accounting Software. Yes, even if you have an accountant, you still need to have at least a basic bookkeeping setup in-house. As we’ve said earlier, it is totally find to use a simple spreadsheet if your business is small (or if you’re freelancing) and you’re tracking all of the expenses yourself. It is much simpler, however, to use accounting/bookkeeping software. You’ve likely heard of QuickBooks, right? There is also FreshBooks, Xoom, and many others. The nice thing about today’s software is that it can be synced across devices.
- Find some space. Set aside a file drawer or put together a file box in which you keep all of your income/expense records. Set up folders for each month and start getting into the habit of putting your receipts, confirmation emails, etc into those folders so that you won’t have to go on a document hunt next year.
Remember: tax time doesn’t have to be stressful. Hire a professional, get organized and the whole process should be smooth as butter.