Navigating tax season requires a combination of foresight, organization, and financial know-how. Taking the time to understand tax laws, maximizing deductions, and working with a trusted tax professional can help set your business up for success.
Organizing your financial documents early can prevent last-minute scrambles and guarantee accuracy. Here are a few key insights from Gift CPAs to help you prepare for the tax filing deadline:
Start Early
A few simple preparation steps can help you navigate tax season smoothly, regardless of whether you’re filing yourself or working with a professional. Getting organized early is the key to a smoother process and avoiding last-minute rushes, which often lead to mistakes and expensive penalties from the IRS.
Start by collecting all documents related to your income and deductible expenses from the past year. This includes all your tax forms from employers, banks, and investment companies. Also, keep receipts for charitable donations and any work-related expenses that are eligible for a deduction. Make sure to include any student loan interest statements, and remember that the IRS recommends keeping this paperwork for at least three years after you file your return.
Then, review your tax return from last year and identify any changes that might affect this year’s filing. For example, did you get married or divorced? Did you start a new job, move, or have children? These kinds of changes can affect your tax bracket and eligibility for certain deductions or credits. You should also consider adjusting the amount of taxes being withheld from your paychecks during the year to avoid having too large or too small quarterly payments.
Once you’ve gathered all the necessary information, take a look at your credit card and bank statements to determine how much you spent during the year on business expenses, which are eligible for a deduction. Be sure to note the dates of any purchases and the total cost for each item. Having this information ready will make it easier for you to itemize or claim the standard deduction when preparing your returns. This will also save you time and money because it means less work for your accountant or preparer.
Keep Your Records Organized
The best way to avoid tax season stress is by staying organized throughout the year. You don’t want to be scrambling to find important documents like your W-2 or canceled checks. By following some simple organizational steps, you can ensure that all your information is easily accessible for when the time comes to file.
Whether you have separate personal and business bank accounts or you keep all of your information in one account, it is crucial to create a system that will work for you. It is recommended that you separate your records by category and label them clearly. This will help you be more accurate when categorizing expenses, which will in turn prevent you from accidentally screwing up your taxes.
For example, keeping a “Miscellaneous” or “Office Supplies” folder for all your receipts can be useful, but only if you stick to it. If you don’t, you could end up with a messy pile of documents that will take you hours to sort through come tax time.
It is also a good idea to keep track of your deductible expenses. You can either itemize your deductions or choose the standard deduction, but both options require proof to support your claim. This proof is typically provided through receipts.
It is also a good idea to set up a “Banking” file to hold your bank and credit card statements. This will make it easy to reconcile your transactions with the information in your other files. You may also want to keep a file dedicated to property taxes, investment information and charitable donations. These will all be needed at some point and can be easily stored in a filing cabinet or digitally saved for future reference.
Utilize Bookkeeping Software
If you’re an accounting professional or small business owner, utilizing bookkeeping software can greatly streamline your tax season preparations. The software helps to automate tasks, centralizes your financial information and allows for seamless collaboration with clients. It also offers receipt scanning capabilities, which makes it easier for you to upload expense documents and other financial records without having to physically search through files for them.
Invest in quality accounting software that is designed to meet your specific needs. Look for features such as automation of workpaper preparation, which eliminates manual data entry and allows you to electronically deliver tax returns, vouchers and invoices to clients. It should also enable you to set target dates for the peak tax season and help you to stay on track with your year-end closing.
You’ll also want to make sure your accounting software provides comprehensive functionality and is compatible with other tools and systems such as point-of-sale, time-sheeting apps, inventory management or ecommerce. Some accounting software options also include additional features such as project management tools or customer relationship management (CRM) capabilities. Choosing a solution that can grow with you as your business grows is important as you will likely require more advanced functions in the future.
Lastly, it is critical to maintain accurate and detailed financial records. This includes accurately differentiating between taxable and non-taxable income. Keeping good records can also help you to determine which expenses are eligible for deductions. This could include items such as a home office, vehicle expenses, charitable donations and more.
Be Accurate
When preparing for tax season, it’s crucial to be accurate and consistent in your bookkeeping. It’s also important to avoid blurring the lines between personal and business transactions. This can lead to errors in reporting income and deductions, as well as legal complications.
To ensure accuracy, make sure to double-check every transaction before sending it off to your accountant for review. It’s also a good idea to use a comprehensive accounting software that provides real-time updates and the ability to view historical data for quick and easy reference. This way, you can rest assured knowing your records are always up-to-date and ready for filing.
Another way to reduce error is to delegate routine, time-consuming tasks to a third-party service. By doing this, you can free up your in-house team to focus on more important work and ensure compliance and security. Additionally, partnering with a qualified and experienced bookkeeping and tax service provider can help you save on overhead costs and improve your efficiency.
Whether you’re a small business owner or an accounting professional, the best strategy to prepare for tax season is to start early and stay organized. By following these simple tips, you’ll be able to file your taxes without any stress or delays, while reducing the risk of mistakes that can cost you money. If you need more advice or have any questions, reach out to a qualified and experienced accounting expert. They’ll be able to assist you with all of your tax-related needs.
Communicate With Your Tax Professional
Keeping an open line of communication with your tax professional throughout the year is key to positioning yourself for a successful filing season. Clients who lean on their preparers more frequently are more prepared and better positioned to avoid costly mistakes during the filing process. This is a win for both parties as it reduces frustration, time and money invested in fixing errors.
As tax season approaches, a tax professional may experience a rush of phone calls and emails from clients looking for information and help with their return. Creating a communication plan beforehand ensures both parties are on the same page about how to approach the filing process. This can be as simple as deciding whether or not to communicate exclusively via email or setting up regular phone meetings.
The Bottom Line of this is to be able to answer the most common questions quickly and efficiently. For this reason, it’s important to communicate clearly and eloquently with your clients. Avoid long stretches of silence over the phone and never leave voicemails or text messages that aren’t brief and friendly. If possible, schedule meetings during the week, and never call a client late at night or on weekends.
Tax professionals should also be willing to take advantage of resources that help them stay current on new tax laws and regulations. For example, Thomson Reuters has an extensive library of resources that provides an array of information regarding taxes, compliance, accounting and more. This one-stop-shop can save countless hours spent searching for and deciphering the latest tax law updates in textbooks and on the internet. It can help preparers and small businesses stay ahead of the game this year and beyond.
