By Kirk Simpson
Tax season is, without a doubt, one of the most dreaded times of the year for small business owners. A mess of receipts, bills and invoices need to be sorted before being inputted into some sort of accounting system. This arduous process needs to be done before even starting taxes. But, there is a better way to do things. By being strategic with finances all year, a business owner can spend time running the business, not taming a shoebox full of receipts.
Step 1. Take Advantage of Online Banking
It is remarkable how many small businesses do not use online banking or the features it has to offer. Moving accounts and bill payments online can have real benefits, such as reducing or eliminating trips to the bank, using automatic bill payments to avoid late or lost fees, and making it easier to manage several bank accounts at a time.
Most importantly for tax season, using online banking will provide a record of your that can be plugged into a financial tracking tool to further organize the business finances.
Step 2. Get a Self-Updating General Ledger
Once online banking is up and running, tackle of the biggest problems small business owners face at a tax time –a disorganized, incomplete and inaccurate general ledger. There are a number of financial tracking tools and applications available for tracking and categorizing financial transactions as they happen, eliminating endless hours of recording each bill or invoice. These tools can come in the form of downloadable software tor a number of cloud computing options cost effective and perfectly suited to small businesses.
The repercussions of not maintaining the business general ledger can be huge. “Disorganized records will result in extra time to prepare your taxes and extra cost if the tax preparer has to spend time cleaning up and decoding your information,” says Wray Rives, a CPA and member of the Wave Pro Network, a community of accountants and bookkeepers dedicated to helping Wave Accounting customers. Even worse, “disorganization increases the chance of a mistake when completing the tax return which could result in an IRS audit if the information is incorrect.” Rives adds the end result could be penalties and interest could result if the taxes are incorrect.
Step 3. Collaborate with a Financial Professional
Most entrepreneurs do not have the time or knowledge to properly handle the tax process on their own. “In my experience, small business owners are either really good at some technical skills or really good salespeople. Rarely are they really good accountants,” says Rives. Trying to do your taxes alone increases “the likelihood of making a mistake or missing a tax savings opportunity for a small business owner” and “easily justifies the cost to work with a professional,” Rives argues.
A financial tracking tool to prepare financial statements and share them with your accountant has many benefits come tax time. Some financial applications even allow an accountant access to the most up-to-date data, eliminating the need to e-mail files and then experience headaches and confusion about which version of the file everyone has. Streamlining the entire process will allow your accountant or bookkeeper to focus on what important: maximizing deductions for your business while minimizing the tax owed.
Even though we are already a few months into the current tax season, it is not too late to follow these steps for this year and next. Doing so will reduce the stress of keeping up with the business accounting and will help put your business accounting in great shape by the time next tax season rolls around.
Kirk Simpson is CEO of Wave Accounting, provider of free accounting software for small businesses worldwide. Simpson has headed three startups and, between ventures, he worked with large firms such as Quebecor and small firms such as Key Media. Connect with Wave on Twitter @WaveAccounting.