How to Have a Successful Tax Season
Sleeves rolled up and PC humming, it was time to do my taxes. I had just started out in business and figured on saving myself a little money by not hiring a CPA my first year in business for myself. I'm not sure what I was thinking but I definitely had a problem on my hands. I had purchase orders, receipted, accounts payable and receivable information, overhead costs and everything else all over the place and still had a business to run. That year, the only form I had filled out in time was my extension.
Having only filed my personal taxes before this and never even thinking how different things would be filing my business taxes, I was hopelessly lost. I had no strategy for taxes. What ended up happening was that I had to take my books to a CPA who basically clucked their tongue a lot and looked at me as if I was asking for a date with their daughter. I squirmed a little but after it was all said and done (two weeks later) he gave me some pretty interesting tax tips. The next year my account and my bottom-line were much happier.
Tip#1. Keep accurate and up to date books. For me this is a daily ritual. When your CPA asks you to maintain your books in a certain way, do it. I mean I have become a stickler for that myself. Once you are in the habit of doing things the way they requested, things will go a lot smoother at the end of the year.
Tip#2. An associate of mine hires a CPA to come into his office, update the books and do his payroll. Outsourcing this is cheaper than missing something and potentially owing more money than is anticipated. A CPA, particularly one who works from home themselves, will charge an hourly rate and average 3-5 hours a week on pay rolling and book keeping. Really this depends on the CPA, the type of business you have and the number of employees.
Tip#3. Purchasing additional office supplies and business related equipment in the last quarter is a good idea. Of all the times to stockpile paper, ink and other office supplies December is the best. The same is true for computers, vehicles and other equipment you need in the course of everyday business. These can all be written off or provide some credit depending on where you live and do business. By doing this in December or the end of the tax year, you are off setting some of the amount owed for that year. It's not a long term plan, but just starting out, anything helps.
Tip#4. Setting up a retirement plan is not a bad idea under any circumstance. Setting one up in relation to taxes has a definite bonus for the small business owner. By setting up a retirement plan for yourself you have the opportunity to lower your taxable income. By how much depends on how aggressive you are with your retirement plan. Again, having a good CPA in your corner will help you to better strategize.
Tip#5. Differing income for the last tax year is also a common strategy. Any income your business receives for December but is collected in January will not count against your income until the next year. This buys you a little time and is a good strategy for cutting your tax bill, though you will eventually have to account for it all on your taxes.
The main thing is to outsource. Outsourcing is good for the economy and good for your business. CPAs are all over the place and will provide you with good service and help your with a tax plan throughout the year making your tax season more successful.