Early on in the financial year, small business owners may start thinking about the following tax season. The tax filing deadline may seem like a long time away, but it’ll be here before you know it. So starting your tax preparation early can help you stay organized, avoid stress, and potentially save money.
This guide provides a helpful overview for getting organized and ready for tax season. This tax preparation checklist covers:
- setting aside time to prepare your taxes
- keeping your documents organized during the year
- gathering all your tax-related documents, including business expenses
- reviewing your tax situation and identifying potential tax credits and tax deductions
- choosing the right tax preparation method: do it yourself or hire a professional
- preparing and submitting your tax return
Set aside time to prepare
No matter how you prepare your taxes, it pays to set aside dedicated time to work on them. Procrastinating and leaving it until the last minute can lead to stress, mistakes, and missed deadlines.
To make income tax preparation less overwhelming, try breaking it down into smaller, manageable tasks, and create your own tax checklist. For example, schedule a task to gather all your tax-related documents, including business expenses; schedule another task for reviewing your tax situation and identifying potential credits and deductions; and a final task for preparing and submitting your tax return.
Starting early can give you more time to review the tax credits and deductions (such as contributing to an IRA) that are available, potentially resulting in a lower tax bill.
Gather important documents
Before you begin preparing your taxes, you'll need to gather all the necessary documents, including the relevant tax forms for your business. This may include 1099s for income such as interest, dividends, and rents. Additionally, small businesses and self-employed sole proprietors need to make sure they have accurate accounting records that summarize the business expenses and activity for the year. Keep these documents and records organized and easily accessible, as you'll need them to accurately report your income and claim expenses.
One way to keep track of all your tax-related documents and accounting records is to create a folder or digital file where you store everything in the one place. You can automate capturing important data and store documents in online accounting software like Xero. These methods can help you avoid losing important paperwork or forgetting to include relevant information on your tax returns.
Review your tax situation
The next step in preparing for tax season is to review your tax situation. Have there been any significant changes in your business since the previous tax year, such as changing your business structure, or moving your business to a different state? Changes can affect your tax situation and may make you eligible for different credits or deductions. For example, if you changed your business structure, you may need to file different tax forms and pay taxes at different rates; while moving your business to a different state could mean complying with different tax laws and regulations. It's important to review any changes with a tax professional or accountant to make sure you're taking advantage of all available deductions and credits while avoiding penalties or errors.
By reviewing your tax situation and researching available credits and deductions, you can potentially save money on your taxes.
You also need to keep up to date with changes to any tax laws that might affect you. Use the IRS website to stay informed about federal tax laws and regulations. Check the website periodically throughout the year to make sure you're aware of any changes that may affect you. You may want to keep an eye on your state’s tax laws as well.
Choose a tax preparation method
If your small business tax situation is relatively simple and straightforward, you may be able to prepare your taxes yourself using online accounting and tax preparation software. These programs can guide you through the process of entering your information and calculating your tax liability.
Using a professional to prepare your small business taxes can be beneficial, especially if your tax situation is complex. While online tax preparation software can be useful, it can't replace the knowledge and expertise of a trained tax professional. A professional can help you navigate the ever-changing tax laws and regulations and ensure that your taxes are prepared accurately and in compliance with all relevant laws. Additionally, a tax professional can provide valuable advice on tax planning and help you identify potential tax savings opportunities that you may not be aware of. Though hiring a professional may come at a higher cost than doing it yourself, the peace of mind and potential long-term savings can make it a worthwhile investment for your small business.
Preparing your taxes doesn't have to be daunting. By starting your tax prep early, you can reduce stress and avoid any last-minute surprises.
It’s just a matter of setting aside dedicated time to work on your taxes, gathering your tax documents, staying organized, reviewing your tax situation, and choosing the right tax preparation method.
If you need additional help or resources, don't hesitate to seek professional assistance from an accountant or bookkeeper. Use this guide to help you get ready for tax season in 2024, and don't forget to breathe a sigh of relief when it's all over!
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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