Keep Your Options Open by Planning Ahead

Okay, you’ve heard me say it before, but getting ready for next tax season NOW, is imperative.  By this time you’ve already gotten past the elation of a sizable return or the drudgery of paying that surprise lump sum.  So, begin to direct your attention to being the best proactive business owner you possibly can be.

Purchasing sophisticated accounting software to help keep you organized does you no good if you’re scrambling to enter your shoebox of receipts at the last minute.  Keeping your records up to date not only helps you rest easier at night, it helps keep an eye on the vitals of your business, which also helps you rest easier.  It’s a vicious cycle.  Doing this will help you make decisions in real time, rather than hindsight.  Updating your books with regularity, at least once a week, is like going to the gym.  You know it’s a good idea, but you put it off until eventually the paperwork (or pounds) pile up, then it seems an even more unsurmountable task.  Think of it as part of your overall financial health and just DO IT for the longevity of your business.

     To Do:

• Document invoices, bank statements and receipts.  Expenses for travel and entertainment are the most reviewed by the IRS so make an extra note on it’s business purpose and who attended the event.
• Always have an updated record of accounts receivable and accounts payable.
• A Form 1099 must be filed for any contractor you pay over $600 in a year.  This needs to be done in January, not at the last minute.  You should be able to predict by June if you will pay a subcontractor more than $600 by the end of the year.  You need their current address, tax ID number, and proof that they are a subcontractor to your business and not an employee.  This includes invoices or business cards.
• If you are the subcontractor paid more than $600 in a year, be sure to include that amount in your taxable income.  June is also a good milestone month to consider year-end bonuses or seasonal hires as they can both affect your tax liability.
• If you are audited, you are responsible for at least 3 years of previous tax and income records.  If they believe fraud is involved, that time period could be extended to 6 years.
• Check for accuracy; reconcile bank accounts and income statements.

  

Remember, having tax questions and asking about options in February is not really setting yourself up for success.  Last minute scrambles to save severely limit your options.  Ask your accountant about some of the things you can do to reduce your tax bill.  If it looks like your revenue is sky-rocketing, it might be a good time to purchase that large piece of equipment you’ve been wanting, therefore decreasing your income.  Also, keeping tabs throughout the year will help your liability be less of a surprise when the time comes, meaning you can accurately predict how much money you need to set aside.

Taking The Leap To Accounting Software

     Nobody likes doing homework.  You’re a small business owner and you’re passionate about what you do, but sitting down with a giant ledger, a pencil (with eraser) and a calculator at the end of the day feels like the homework that you hated doing back in your school days.  Unfortunately, it is a necessary evil all small business owners must suffer for the financial health of their growing business.  This is where modern technology comes in to save the day!  There are lots of software options out there to help free up your time and make the tedium of recording expenses and creating reports a little more bearable.  Choosing the right software can be a crucial step for your business, and will even help make tax time a little easier.

 

     First and foremost, is investing in accounting software right for you?  If you’re one of the few people who find zen in numbers, maybe a handwritten ledger is enough for you.  If crunching numbers isn’t your forte, but you’re still on the fence about making that investment, here are a few things to consider.

     If you’re just starting out, investing in accounting software from the jump is a great idea.  Not only will you have a sophisticated accounting method in place from the beginning, but the tool you have just invested in is already counting on the future success and growth of your business.  It is way easier to start with efficient accounting practices than try to incorporate them down the line.  The object is to see your numbers grow, and accounting software will help you track, streamline, and invest smartly.

     If your business is expanding, don’t wait to get overwhelmed by your growing numbers.  Tackle your accounting issues with software and automated reports, this will save the day.  Using accounting software for your growing business will save you tons of time and can accommodate any amount of expansion your business is taking on.  You’ll be able to see more easily where you’re money is going, what areas need more growth, and areas where you could save a little.

     If you’re into instant gratification, well, more like instant access to data.  Having accounting software can give you on-demand access to customer information such as client and vendor contact information and their purchase history.  You can also link accounts and credit cards so purchases you make will immediately get recorded.  If you’re utilizing any third party solutions, such as POS systems, data will immediately be updated by your accounting software.  Streamlining your business operations will contribute to its success.

     Finally, if you want to make sure you’re operating under laws and regulations.  Keeping a ledger by hand can not ensure you’re following all the accounting principles or tax law guidelines.  Accounting software can do all of that legwork for you and save you the headache.  Especially at the end of the year when you’re worried about tax season, having everything organized and in compliance with regulation is a huge time saver.

     Ultimately investing in accounting software is investing in yourself and your success.  Having a advanced accounting system set up for your business can help you track its financial health faster, easier and more efficiently.  Not only will it help you file taxes at the end of the year, but you can write it off as a business expense.  Its a win/win all around.

Accurate Accounting And Its Importance

Tax law these days is getting increasingly complex.  Knowing what qualifies for a tax break, questioning what you’re required to claim or not along with saving your receipts year round can be overwhelming. Recent rulings in federal courts have put the burden of proof more heavily on the taxpayer rather than paid tax preparers, which a staggering 50 percent of Americans rely upon when tax time comes.  Whether it be e-filing at home or a larger firm, in the end the responsibility is still with the person who is filing.

In 2013, Federal Courts ruled that the IRS did not have the power to regulate paid tax preparers and this decision was upheld in appeals court last year.  In response to this ruling, there has been new legislation introduced in the Senate to give the IRS and the Treasury Department said needed authority.  The intent of this legislation is to protect tax payers from incompetent preparers by making enforceable standards to which they will be held.  While CPAs, tax attorneys and Enrolled Agents are still under the IRS’s umbrella of regulation, this new legislation is aiming for those tax preparers who aren’t already registered.  For now, the IRS is offering a voluntary program for continuing education and testing called the Annual Filing Season program. 

There is some controversy over whether or not this will be good for the taxpayer.  Some argue that making the IRS responsible for overseeing the very preparer who is trying to guard your money from the government seems as helpful as shooting yourself in the foot. In other cases, it is viewed as holding the preparer responsible for his or her job the way you would a contractor to build your home, there are rules you must be held accountable for.  However, in both cases it is clear that the taxpayer must ultimately be the one protecting themselves.  To stay organized throughout the year, spending a little extra money on a qualified accountant to keep track of yours can really pay off in the long run.  Maximize what you save in paying taxes or maximize what your tax return may be, keep track of your dollar so you can be solid and assured when its time to file.

Click here for more information about the introduced legislation.