It’s tax season, which means many small businesses will be looking for ways to save money and get the most out of credits and deductions for their return. Preparing a tax filing can be a scramble to find the proper documents, fill out the correct forms and follow the appropriate filing steps. Fortunately, some simple ways exist to make the experience less overwhelming and run more smoothly.
Small-business tax preparation starts with ensuring your books are in order. Glen Zibolis, a Rhode Island-based advanced certified QuickBooks ProAdvisor and part-time business adviser with the Rhode Island Small Business Development Center, suggests a few tips to simplify the preparation process and help you get tax season ready.
Pick the right accounting software. If you are still using a spreadsheet to manage your small-business taxes, the chances for human error are much higher, which can impact the accuracy of your tax returns. If hiring a professional accountant isn’t an option, there are numerous accounting software options available.
No matter the software you choose, starting with a basic understanding of how to access and retrieve financial reports is imperative. From there, picking the best software will ultimately depend on your business reporting needs. We like to recommend QuickBooks because it is the most accessible accounting tool, offering a seamless way to understand your business’s overall financial health, pull regular reports and track the information you need to become tax season ready
Separate business expenses from personal ones. For a small-business owner, it is easy to feel like personal and work lives overlap. Unfortunately, one of the most common ways to get into tax trouble is by mingling personal and business expenses. Several issues can arise if you don’t separate your expenses. First, filing taxes will be challenging and potentially present missed financial gains as it will be difficult to decipher which deductions can be claimed on the return. Second, securing a loan could become tricky as lenders need an accurate income picture for the business.
One of the first things on the to-do list as a new small-business owner is to establish a separate business bank account. With this, you will ensure accurate financial records, keep personal transactions private, and save yourself future headaches.
Regularly reconcile bank and credit card statements. An essential step for small-business tax preparation is ensuring all bank and credit accounts are reconciled monthly. This means comparing your financial records with those you get from your bank to check for discrepancies. You will want to take this step for any business credit cards or payment accounts (such as Venmo or PayPal), too.
By regularly reconciling statements, a business owner can generate a more accurate tax return, validate data entry, catch potential fraud and spot if employees or other people might be stealing.
Bonus tips. Free up time and gain expertise with the help of a professional accountant. Retain copies of all checks deposited into bank accounts. Maintain a business trip and mileage log if using a personal vehicle for business. Correctly classify your business to avoid overpaying or underpaying taxes. It’s worth consulting with a tax professional to confirm the correct classification.
Whether or not it’s your first tax season, you can use these small-business tax preparation tips to get a head start on filing and getting organized for the next tax year. The staff at the Rhode Island Small Business Development Center is available to provide more guidance.
Manuel J. Batlle is the associate director of the Rhode Island Small Business Development Center at the University of Rhode Island.
