If you just filed your taxes, you’re probably hoping not to think about it again for at least another nine months. Tax season doesn’t have to be painful! If you’re thinking about taxes year-round as you manage your company’s finances, tax season will be much smoother.
Below are six actions you can take to start preparing for the 2020 tax season.
Keep accurate records
When filing this year, did you find yourself digging through emails for an invoice, or trying to find a receipt for a business expense? Save yourself the headache and invest in a system that tracks your expenses, like Quickbooks. Accurate records are not only necessary in case of an audit, but can also help you save money with deductions.
Separate business and personal expenses
If you are a sole proprietor it’s easy to mix your personal expenses with your business expenses. You use your personal phone, a home office and your car to conduct your work. Establish a limited liability company (LLC) if you haven’t already, and use it to open business accounts that will keep your business’ money separate from your personal accounts. Not only will it make things easier come tax time, it will also limit your exposure in case of a lawsuit.
Get a handle on payroll
The IRS checks quarterly if your company is paying payroll taxes. If you’re new to managing employees, you need to ensure the proper amount is being withheld from their paychecks for taxes based on the W-4 form the employee submitted. Many companies outsource payroll management to a third-party who can navigate federal and state tax laws and manage some human resources tasks.
Review your business classification
Different business types have different tax responsibilities. If you’re incorrectly classified, you might be paying too much or too little. Your company may have started as a pass-through entity, meaning you paid your business taxes on your personal return. If you’ll be hiring employees and expanding your company, you will want to establish your business as C Corporation whose income is taxed separately.
Understand your business income
You need to report all income your company received on your tax return. If clients send you 1099-MISC forms, you need to report that income on your taxes. Because of the 1099 form, that income has already been reported to the IRS. Even if you did not receive a 1099, you still need to report that income. The same applies for state taxes.
You should also understand your company’s net income and gross income. Gross income is the profit remaining after deducting the cost of the product. Net income is the amount remaining after subtracting all expenses from your gross income. Understanding these figures can help you report accurately and plan for the coming year.
Hire a bookkeeping expert
A bookkeeper can help you manage all of the above and more, making tax time a breeze for your company. The right professional can help you track income and spending, prepare your tax return, manage your payroll and help plan your financial future.
Looking for a tax professional to help you with next year’s taxes? Contact us at MCG Solutions today to get started.