Year Round Tips for Preparing Taxes
Contrary to its reputation, the IRS is not filled with sleuths, committed to bring down every tax wrong-doer. Instead, tax employees are highly-trained clerks whose job consists of making sure that documents are filed properly, appropriate accounting is carried out and that the government gets its fair share. For them, good tax preparation is synonymous with proper accounting. The best way to make tax reporting simple is to create proper fiscal procedures.
Practice Good Bookkeeping
The best way to make tax prep easy and stress-free is to have all of your information in one place, accurate and accessible. Your bookkeeping process should be weekly or, depending on the size of your business, daily. Use a powerful accounting software that will give you all of the financial statements, including W-2 employee forms, that you need for your quarterly or yearly taxes. It is best if the software offers online access so that you can do your bookkeeping from the comfort of your home or the local coffee spot. With everything in the system, tax preparation becomes as simple as a push of a button.
Another place where business owners become bottlenecked because of procrastination is in the reconciliation of the bank statements. The purpose of account reconciliation is to make sure that the actual bank account matches the records in your accounting ledgers, all the information that you just put into the system during the bookkeeping process. It is impossible to have an accurate income report from which to calculate taxes if you do not know the right amount that you have deposited and expensed from the account. If a check is missing, track it down and make the proper entry in your ledger. If you do not know how to do this, ask your accountant.
Count Your Inventory
If you make a product, then you will have inventory that may include finished products, goods in process and raw materials. This inventory can affect the net income which is the amount that you use to create your taxes owed. To properly account for your inventory, you will need to count every item and be able to reasonably assign a value to them. Typically, finished products can be valued at their sales amount and raw materials have a value equal to the amount of purchase. Produces in process have a value somewhere in between. The value of inventory is reduced from your expenses so that your income and associated tax liability will go up.
Understand Employment Rules
Miscategorizing employees is the best way to trigger an audit. Full-time, part-time, exempt, non-exempt and independent contractors can all have different tax and benefit structures. Every year, millions of employees are miscategorized, costing employers billions of dollars in legal costs and penalties. The IRS has specific rules on how to classify employees, especially highlighting the differences between employees and independent contractors. Know these rules to save yourself a lot of time, money and effort.
Communicate With Your Accountant
The last rule for making a smooth tax preparation is to let the professionals do what they do. Your accountant should be up-to-speed on the newest rules and regulations. Make sure that they communicate this information to you often so that you can make adjustments as things happen and not in arrears. A good newsletter from a knowledgeable accountant will go a long way in making tax time easier.
Photo Credit: Provided by Social Monsters with permission to use.