tax season success

How to Set Your Small Business Up for Tax Season Success

By Kevin Miller

Now that most small businesses have finally moved past the always hectic tax season, many owners and managers are wondering — how do I avoid another disorganized and stressful April that consists of searching for lost expense receipts and verifying business documents that are months old?

Too often, small businesses are stashing crumbled receipts in desk drawers or letting electronic business documents sink to the bottom of their inboxes, despite how important they are to the business. In order to avoid the headaches that typically come every tax season, forward-thinking small business owners should be proactive in their tax prep processes and implement workflows immediately that will result in a more relaxed 2019 tax season, while also maximizing deductions that lead to business growth.

Understand the New Tax Act

While applying simple, everyday workflows early in the year to ease the overall tax season burden is important, the first thing small businesses will want to do this year is familiarize themselves with the new tax act introduced by the government.

The new tax act is generally viewed as a win for many small businesses because even in a flat year profit wise, small businesses will incur significantly lower tax liability relative to years past, but there are certain aspects of the act that will directly affect business operations, like the Qualified Business Income Deduction.

The Qualified Business Income Deduction may influence hiring decisions because it is limited to the lesser of 20% of qualified business income or 50% of the total W-2 wages paid by the business, so a business that employs a number of 1099 workers would have a small W-2 limitation, ultimately leading to a small deduction. There are a number of other factors that may affect this decision, specific to each business, but it is these types of changes that small business owners need to know.

Set Up Tax Prep Workflows

Once small business owners familiarize themselves with the ins-and-outs of the new tax bill, they should start to add simple workflows into their everyday routine that will ultimately result in a more organized tax season, once it rolls around. Some everyday tasks that will simplify tax prep include:

  • Collect receipts and invoices: Small businesses need to collect more than just business expenses. By holding on to documents like customer invoices, debt collections and vendor accounts, small businesses will be sure they’re maximizing deductions, and more importantly, staying compliant with the IRS.
  • Digitally save all business records: Gone are the days of bulky filing cabinets and over-stuffed desk drawers. Today’s modern business technology lets owners and managers capture all important business records with their smartphone, eliminating messy, disorganized paper clutter while also making all documents available from the palm of a hand.
  • Begin to reconcile your bank records: By comparing transactions from a bank statement with the business’ accounting records, owners and managers will be able to ensure that they’re not missing any expenses as well as ensuring their bank is not making any mistakes.
  • Keep personal and businesses expenses separate: Since owners of small businesses wear many hats when it comes to their day-to-day operations — from bookkeeper to head of sales — it can be easy to combine personal and business expenses into the same account. This is a bad practice that needs to be eliminated immediately because it may result in the owner being held personally liable for all business’ debt and actions.
  • Don’t go at it alone: Most owners didn’t start their business for the tax and bookkeeping processes, so rely on those who are experts. As trusted consultants, accountants and bookkeepers will be able to provide owners with an efficient tax prep process that can be applied throughout the year to ensure an easy tax season next year.

Aside from avoiding a stressful spring, by applying tax prep processes early and often, owners and managers will ensure they’re getting the most out of their deductions, and what business owner is not excited about the possibility of having extra cash?

More cash enables business owners to make that extra hire (be sure to figure out if it should be a 1099 or W-2), increase advertising and grow their business. So, while these small tasks may initially alter day-to-day business workflows, they will soon become routine and eventually lead to less stress and more business growth.

Photo credit: Businesswoman balancing the books from Gajus/Shutterstock

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Kevin Miller
Kevin Miller, CMO at Neat, is a recognized leader in software that provides small businesses with the ability to track and manage their expenses and spending.

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