When you ask people to name their favorite season, there’s a reason nobody ever says tax season. There are no flavorful dishes or family gatherings, and April 15th — a date most Americans know well — isn’t exactly what you’d call a holiday. Unlike the joy of spring or the beauty of autumn, tax season is synonymous with lost sleep and delayed hindsight.
Thanks to an extension from the US Treasury Department and Internal Revenue Service, the angst of tax time will continue on until May 17. While the extra time is a relief to many business owners, it doesn’t solve the pressure of scrambling to prep for taxes and the responsibility of running your operations simultaneously.
Must tax season always be stressful?
If you’ve ever wished you could go back in time and take steps to prepare for taxes before the season hits, you’re not alone.
We don’t have a time machine, but we do have advice on how to make next year’s tax season better. You may never look forward to confronting your tax liability, but if you build these habits, you at least won’t have to dread the process anymore.
Habit #1: Keep Accurate Records
Believe it or not, 57% of businesses claim that they lose six working hours a week due to disorganization. Maintaining accurate, organized records can save you time and effort once tax season rolls around by letting you easily track your business’s progress, identify your sources of income, and monitor your deductible expenses.
Good records are essential for preparing tax returns; you’ll need records to support the income, expenses, and credits that you report in case the IRS wishes to examine your tax returns. And good record keeping isn’t just a tax solution. Having your books buttoned up, makes it much easier to get financing, attract investors, or even eventually sell your business. If it sounds difficult to manage your business and records simultaneously, you can solve this problem for good by outsourcing your bookkeeping.
Habit #2: Incorporate a “Year-Round,” not “Year-End,” Tax Strategy
You’ve probably heard the phrase “the early bird gets the worm.” When it comes to tax strategy, the early bird gets to skip a stress sandwich. Financial expert Carrie McKeegan says: “Tax deadline strategy boils down to this: the earlier, the better. You’ll have more of your accountant’s focus at the start of tax season, which is the best time to strategize.”
Thinking about taxes far ahead of tax deadlines ensures that you are making the best financial decisions for your business. This includes making tax-deductible investments before the end of the fiscal year, identifying poor spending habits that are hindering tax goals, and obtaining business or personal financing. In other words, waiting until the last minute can disrupt more than your tax strategy — it also hurts your overall business goals.
Habit #3: Take Advantage of Tax Credits & Incentives
Paying attention to tax credits pays off—literally. Tax credits can save far more than deductions; tax credits offer a dollar by dollar reduction on your tax liability, regardless of which income tax bracket you’re in.
Of course, in order to take advantage of tax incentives, you need to stay on top of new and existing credits that apply to you. In 2017, the Tax Cuts and Jobs Acts made it possible for “pass through” entities to deduct up to 20% of their qualified income — although this legislation is currently under the new administration’s review. Meanwhile, new tax credits have been added to support businesses during the pandemic, including credits for paid sick leave for employees. For a full list of business tax credits, go here.
Get An Early Start
Taxes are an essential part of doing business, but nobody expects business owners to be tax experts. Fortunately, many accountants specialize in working with small businesses. Adding bookkeeping services can make your tax prep that much easier.
Don’t wait for the end of 2021 to get ready for next year’s tax season. Start early with your business and accounting advisors so you can take advantage of looking at your total financial picture well before taxes are due. Smart advisors can do more than help you reduce your tax liability — they’ll also show you where your business can grow and how to make more money too.