The Dos and Don’ts for Successful Business Tax Returns
Settling accounts with the taxman: It makes everybody groan.
The tax season can come with nasty surprises.
Navigating it can feel like walking through a minefield with a blindfold on.
The best thing you can do?
Well, that’s all covered neatly in this list.
Keep reading to find out how to handle your business tax returns so that your taxes don’t return with a bite.
Avoiding Nasty Surprises With Your Business Tax Returns
The key to avoiding penalties, fines and audits is to be proactive and plan ahead.
Tax laws evolve and what was true last year might change this season.
Staying on your feet, proactive, and flexible helps ensure you’re taking advantage of all the benefits available to you – it keeps you compliant.
Unexpected tax bills can disrupt your cash flow – but tax foresight isn’t only about financial management.
There’s such a thing as a black sheep in the eyes of the IRS and a negative mark in your history means more scrutiny further down the line.
Do: Organize Your Financial Records
Meticulous, up-to-date, comprehensive: That’s how the IRS wants to receive your financial records.
Good record-keeping leaves no unanswered questions or red flags that might prompt an audit when the tax season is over.
Good financial record-keeping helps you, too, by giving you a clear picture of your financial decisions and their impact.
Ensure your transactions are recorded promptly.
Categorize them and don’t “put it off” for later.
High levels of detail will help you identify deductibles and reduce the likelihood of inconsistencies or errors. Accounting software can help.
Good accounting software minimizes the chances of human error and cuts out a lot of paperwork that has a nasty habit of getting lost.
However, as we’ll discuss below, it’s important that you’re not overly reliant on software alone.
Don’t: Mix Business With Personal Finances
This is a big no-no in filing taxes.
Mixing your personal finances with business taxes won’t save you money.
It’s only likely to make the IRS think something’s wrong.
How do you avoid a mix-up?
Even if you’re a small business owner, you should have separate bank accounts and credit cards for your business.
In the event of an audit, you’ll have clear boundaries between your personal and business finances which can also protect your personal assets from business liabilities.
Do: File On (Or Before) the Deadline
Deadlines exist for a reason: They’re not a friendly suggestion. Filing after the deadline does two things.
First, it alerts the IRS that something may be wrong with your tax returns.
Second, it’s likely to slap you with a fine.
But what about filing early? Most businesses file on the deadline each year.
That means a disproportionate amount of work for the IRS. This means delays.
You’re more likely to nudge your tax returns along if you file early and you’ll have more time to arrange payment if you owe taxes.
Don’t: Disregard Local Taxes
Taxes are a muddly ordeal and a headache for many business owners.
The fact that you’ve got to contend with local (or state) taxes as well as federal taxes is a good reason you (should) have an accounting firm on speed dial.
Neglecting local business taxes can lead to costly penalties or interest.
Somewhat annoyingly, each state has its own tax regulations from sales tax to franchise tax.
Keep informed about your local obligations when filing taxes.
Do: Leverage Tax Credits
Tax credits are one of the upsides of filing taxes.
They reduce the taxes you pay for all sorts of reasons, such as:
- Energy efficiency and sustainable practices
- Health insurance premiums
- Paid medical leave
- Work opportunities for underserved populations
- Disability access
Claiming tax credits generally requires specific documentation and proof of eligibility but taking advantage of them can have a noticeable impact on your liability.
Don’t: Neglect Documentation
Evidence of income, evidence of expenses, and evidence of tax credits.
The more, the better.
You need everything you can get your hands on.
Without proper documentation, you may find you’re unable to back your claims up.
You should regularly review your documentation and not wait until the tax season.
If audited, you’re expected to provide proof of all transactions on your tax returns.
Without it, you risk paying fines and interest and you may end up staring down the barrel of a higher tax bill.
Do: Seek the Help of an Accounting Firm
Yes, the stakes are high.
Yes, tax returns are complicated. Yes, mistakes are common.
And yes, seeking the aid of an accounting firm come tax season will save you time, money, and hassle.
Accounting firms do this sort of thing every day, and they can tailor their business tax strategies to your needs.
Whether it’s strategic planning, identifying tax credits, or representing you in disputes with the IRS such firms provide invaluable support.
Hiring them isn’t a one-time deal.
Instead, it’s an ongoing relationship with professionals who become familiar with you and your business.
Consistency and long-term partnerships lead to effective tax strategies and a better understanding of your position year in, year out.
Don’t: Rely Solely on Accounting Software
As we noted before, accounting software is great for record-keeping.
But it’s not the whole picture.
It isn’t infallible and is only as good as your filing strategy.
You can’t consult it on the nuances of your local tax regulations:
Technology is an aid, not a substitute for a professional.
Combine effective software with the insights of a tax professional, and you’ll soon find your business taxes a breeze.
Partner With Professionals
Your business tax returns don’t have to be unpleasant or stressful.
Remember, the tax season isn’t only about obligations:
It’s a chance to review your financial practices and make informed decisions.
Take these dos and don’ts to heart and consider reaching out when you need a guiding hand.
Our job is to protect our clients.
At Master Accounting and Tax Service, we offer high-quality bookkeeping and tax services to help our clients file on time and save money.
Our secure, encrypted web portal can help you go paperless and you can arrange a consultation by clicking here.
Looking for an accounting firm in Scottsdale, AZ? Make tax season easier with Master Accounting and Tax Service. We specialize in providing top-tier accounting, tax, bookkeeping, and fractional CFO / controller services at an affordable cost and with the utmost integrity. Call (480) 456-4999 or Contact us today!
