If you’re one of the many small business owners who hasn’t done his or her bookkeeping all year long, this tax season will unfortunately be a stressful time as you frantically scramble to pull together all your receipts and business expenses, trying to account for every single thing you did in 2018.
To help you through this period, here’s a useful checklist of the top four things you should do before you turn your books over to your tax preparer:
File for an extension.
Give yourself enough time to gather your financial documents. You have no idea how long this process will take, so it’s best to grant yourself enough time.
Don’t wait until the last minute to request an extension for filing a tax return. You will need to inform your tax preparer of your income and expenses for the year so that he/she can calculate potential taxes due and send that along with your extension request. If you feel you have already paid the taxes due, you don’t need to worry about this. But if your income has increased over what you estimated during the year or your expenses are lower than anticipated, you will need to pay the amount owed or be subject to penalties and interest when you finally do pay your taxes.
Gather all fiscal records.
Compile documentation for all your purchases, business expenses, income and records of transactions, pulling all your receipts, bank statements, cancelled checks and paid bills.
If you’re a small business owner who on occasion tends to put some expenses (like for a home office) on personal credit cards, that documentation also needs to be gathered to ensure all business costs are captured.
Sort and categorize financial documents.
After you have collated your financial statements, you will need to sort each business expense into different categories, such as auto expenses, home-office expenses, utilities, medical expenses, office supplies and charitable contributions. That way the tax preparer can easily access the right numbers, therefore allowing for accurate reporting on the tax return.
Make sure all income is documented.
Tracking income is the area where small business owners can really get into trouble. You need to report all forms of income you receive. For example, if you receive a reimbursement check, it would still be considered income. The amount that the company spent would be deducted as a business expense. You need to be able to show your tax preparer how much income you received this year, because if the Internal Revenue Service audits you, the figure must be 100 percent accurate.
The IRS doesn’t care if you fail to report all your business expenses but will pursue you for failing to report your income properly.
After Tax Day is finally behind you and you’ve filed your return, sit down and try to identify a better way of maintaining your financial records, not just in preparation of tax season but all year round, so that you’re not in this same situation again next year.
If you don’t have time to do a little bookkeeping each day, when will you find time to record a month’s or a year’s worth of records? This is the perfect time to hire a bookkeeper. By doing so, your finances will always be in order, which in the long run will save you money.