By: Darlynn Morgan, Orange County Business Attorney
It’s that time of year again…
Time to get all your ducks in a row to report your income to Uncle Sam…
When you’re trying to take care of a family and run a business, the last thing you want to think about is getting all the paperwork together to deal with the Internal Revenue Service.
But if you get yourself and your paperwork organized early on, it will make tax time a little less frantic.
Here are a few tips to make getting organized a little easier:
1. Keep Up With Your Income AND Your Expenses
When was the last time you balanced your checkbook? Chances are, if you’re banking online, you haven’t done it in a long time. And that makes it much easier to lose track of what’s coming in and going out. Invest in a software package now, like Quicken, that will help you keep an eye on your finances, run reports as you need them so you can see what’s going on with your money, and pull everything together painlessly when you have to turn it over to your accountant for tax time.
2. Organize Your Expenses by Category
Yes, this can be time consuming in the beginning but it will pay huge dividends in the long run. And be specific. If you use your car for business, categorizing gas and maintenance as Vehicle Expenses (including mileage) will be much easier to prove up (with the proper receipts) than just lumping them all together under a Miscellaneous category. If you’re not sure how to categorize all your expenses, talk to a tax professional for guidance. It’s better to start your system the right way.
3. Have a Home Office?
If you’re working from the dining room table and the dining room is not used exclusively for your business, it will be hard to take a portion of your mortgage as a deduction for office space. Set up your home office so that the space you use is used only for your business. Keep track of all purchases made for business, from computers and accessories to office supplies. Again, ask a tax professional how to do this so that you maximize your possible deduction.
And, just in case you didn’t know, any business related phone calls you make from home are deductible. When you get your bill each month, go through it and highlight the business calls. At the end of the year, add up all the calls and there’s your deduction.
4. Pay Your Estimated Taxes On Time
You should be paying your estimated taxes quarterly. If you don’t pay them quarterly, you could be looking at a penalty of 4% of the amount you actually owe. While it may be hard to calculate this amount accurately, an easy way to estimate is to pay 25% of the amount you owed last year. Try to be as accurate as possible to avoid overpayment.
5. Watch Your Profit and Loss
Do you have a profit and loss statement for last year? If so, take a look at it. Did you control expenses? Did you get credit for every possible deduction? Did you go out of your way to keep your paying customers happy? Keeping an eye on where your money is coming from and where it’s going is vital to running a successful business. See where you fell down last year and make sure you don’t repeat the same mistakes this year.
Having this data in hand when you see your accountant to prepare your taxes (and plan for the next year) will make both your lives easier.
If you’ve done these five things, you should be well on your way to a relatively painless tax season.
Still not sure you have everything together for tax time?
Want to make sure you’re maximizing your deductions and doing everything you can to control your expenses?
Talk to us. We can help.
Call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit to make sure you’re taking advantage of every tax break and staying on top of all legislation that affects your business. Normally, this session is $1250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.