If you’re a small business owner and procrastinate when it comes to tax time, this article is for you. Below you will find some tips to help you get organized, set up your accounts and make more tax advantageous business decisions now so that next year’s tax time will be a breeze.
Review 2013 income and expense
Since we are in the middle of the 2013 tax filing season, and you likely have your 2013 tax information close at hand, now is a great time to review your income and expenses for 2013 and use this information to make any necessary adjustments for 2014. For example, did you claim income that could have been deferred? Could some of your expenses have been managed differently to be more tax advantageous?
Update chart of accounts
Another important but sometimes overlooked step is to review and, if needed, modify your chart of accounts. The chart of accounts is the backbone of your company file. Identify which accounts should be added, deleted or changed. You also need to know which accounts and subaccounts will have an impact on your income taxes and ensure that they are structured properly. Although this is a critical step to staying organized, often business owners don’t want to take the time. Believe me, when I say that taking the time upfront to get your chart of accounts in order will save you big in the long run. A messy and tangled up a chart of accounts can suck up a tremendous amount of time when you go to rectify.
Formulate a system for estimated taxes
Another important step in getting organized for 2014 is to develop an efficient system for estimated taxes. While there’s no set formula for precisely estimating how much income tax you’ll owe, a review of historical data and quarterly income and expense projections for 2014 should give you enough information to develop good estimates.
For those who are self-employed, it can be helpful to open a low-fee checking account that you will use solely for your tax fund. Especially if you are new to being self-employed and used to your employer taking money out of your paycheck for Social Security and Medicare, it can be a real shock if you aren’t putting enough away to cover these obligations. A good rule of thumb as to how much to put into that account is one-third of your taxable income. Then monitor and adjust accordingly.
Run reports and review regularly
Although many think reviewing financial reports as a cure for insomnia, you will be well served to review the reports on a regular basis to make sure you are on top of critical business metrics.
If you need help with this year’s tax filing or planning for next year, please contact me.