When it comes to filing taxes, preparation is the key to a successful experience. Whether you use an accountant, an accounting program or do it the old fashioned way, by filling out the paper forms, preparation is imperative. The better prepared you are before you do your taxes, the more likely you will be to not miss deductions.
Both of us decided that taxes are always important so we’ve combined our efforts to give you some suggestions for making tax season less stressful.
This is not tax advice, however, here are some tips that we’ve found helpful in getting ready for the tax season.
Tip 1: Advance Preparation
I actually start my tax preparation January 1 of the previous year by getting a file folder ready that simply states “Taxes 20xx”. Anything that might be considered as deductible for taxes goes into this file. Receipts, phone bills, donations, etc. are examples of what is filed. This way, come January of the current year, I am able to quickly prepare information for the accountant. I have found that this simple tip saves me an enormous amount of time.
Many tax preparers send out a list to help you double check information. If you are lucky enough to get one of these memos, use it. It will make your prep efforts go faster and eliminate many questions.
I start my preparation before the end of the year by making sure that my accounting system is up-to-date and reconciled. Then, I review all expenses for each category to make sure I have all the receipts. I save them all electronically by year and month.
Tip 2: Gather Deductions/Expenses
Tax laws change all the time, so what you deducted last year may not be eligible this year. The best advice that I can give you is to have your list ready. Just be aware that you may not be able to deduct everything on your list. Items that might be consider include:
- Cell phone-(you will need to figure out what percentage of your phone use is for business).
- Office supplies-pens, paper, ink etc.
- Office equipment-computers, printers etc.
- Meals-when used for business (check with your tax preparer)
- Accounting programs- i.e. Freshbooks, Wave or Quickbooks to name a few.
I totally agree here. I make sure that I have a copy of the year-end Balance Sheet and Income Statement. I also make a separate sheet with a list of questions for my tax preparer.
Note: Always keep personal expenses separated from business expenses.
Tip 3: Verify 1099’s
You should receive a 1099 for each of the clients that you bill. If you have employees or contractors, then you need to make sure that they get a 1099 from you.
In early January, I run a report of all payments collected for the previous year for each client. I then email my report to each client and ask that they give it a review and confirm that our numbers match. Even though I should receive a 1099-MISC for each client for amounts spent over $600, it doesn’t always happen and I want to make sure that we match.
Don’t forget any other forms that your preparer will need! It’s better to have too much than forget something and have to return again. Remember, the more you are organized and prepared, the shorter your stay with the tax preparer will be.
Tax preparation will not be overly stressful if you plan ahead and keep organized throughout the year. These tips help the two of us get our taxes done with a minimum of work. If you you are challenged during tax season try some of our tips for the upcoming year.