It’s that time of year again: tax season. Something we’d all likely rather avoid, given the excessive paperwork and minutiae overload, but at the end of the day, it can truly be beneficial to a business if done right (kind of like attending a dinner with in-laws; you can’t avoid them, but know you’ll get brownie points for spending time with them). All jokes aside, this is a season that can be particularly grueling for small business owners. In comparison to larger corporations who have departments or outsourced agencies and limitless resources to prepare and file taxes, small businesses need to combat the stigma of doing everything on their own. This year’s tax season is said to be one for the books – and not in a good way. It’s predicted that it might take quite a while to receive tax returns this year due to major backlogs from the Treasury Department – so with that being said, the earlier a business owner can start the process, the better. This means implementing various measures in order to stay organized and timely – and most importantly, seeking out an accounting partner.
What can small business owners do?
It is no secret that tax season preparation can be overwhelming and daunting for small businesses – and usually, this acts as an easy way to avoid being proactive in the process (hint, hint: procrastination). It is not just important, but vital for small businesses to get ahead of tax preparations. This will not only deter them from spending more money than necessary, but also from making errors that could set one’s business back entirely.
From the get-go, every single aspect of the tax filing process comes down to the preparation (or lack thereof). Oftentimes this is a missed step in the process as many small business owners don’t know how to properly prepare on their own, but also are so focused on getting their filing done on time that they lose sight of the significance of building-block steps. Small business owners should treat filing taxes like studying for an exam. Of course, they could get right to studying – but first, they need to organize themselves: determine what needs to be studied, how lengthy the information is to create a timeline, and then weed out any excess. From that point, they are in a far more organized and methodical position to study for success. The same goes for filing. Instead of diving into all boatloads of financial records, the first step should be to access them, organize them, and then create a system for storing and collecting those documents to streamline the process.
Next, it’s key to have a concrete understanding of one’s business’ financial situation. Don’t enter the storm of tax season with a blind eye. In general, it’s imperative that small business owners have a grasp on how the business’ finances are tracking so that there can be plans in place in the case of any decrease in income. In regard to taxes, it’s key to know where everything stands financially in order to properly navigate through filing (for example, reporting losses or profits). One tool that can help alleviate some of the challenges associated with doing this work manually is partnering with an accounting software that can keep track of business finances and import transactions into the accounting platform.
Tax laws are constantly changing and updating, especially within the past year. With this, it’s extremely difficult to stay up to speed with new regulations while also running a business. Despite this, it’s important to follow Uncle Sam’s rules. Small business owners should lean on their external accounting partner to help keep them honest with tax laws and which ones may be directly impacting their business. Furthermore, not only is it difficult to keep up with the laws, but digesting and understanding them is an entirely separate hurdle. For small businesses owners who don’t have financial or accounting backgrounds, it could be incredibly difficult to decode new standards, especially when there tends to be a lot of gray area with the IRS. Taxes are hardly ever black and white.
Aside from preparation, this could also be one of the most overlooked steps: taking care of oneself. In this day and age, there are countless obstacles to face, ultimately leading to burnout. Small businesses owners tend to have an entrepreneurial spirit, and sometimes that spirit can translate into taking on too much responsibility alone. When it comes to a business’s finances and taxes, it is critical to have a partner to lean on – and there are many reasons why. In the interest of filing taxes, there will always be a risk in trying to do everything solo – and mistakes on taxes are not easy to reverse. Furthermore, for those business owners who don’t have any background on accounting, they may be filing in such a way where they’re paying much more than necessary. Accounting partners act as the liaison between translating information and making it easy to understand, and having this will in turn benefit small business owners’ wellbeing by reducing pressure and stress. Small business owners: stop, breathe, take care of yourself – it will keep you refreshed and focused which will allow you to get through tax season successfully.
All in all, don’t be afraid of the “t” word. Know when it’s time to lean on accounting partners or when it’s time to bring one onboard in the first place. There is no greater truth than early on in tax season and now is the perfect time to get started.
Michael Turi, CPA, MST and Partner Consultant, Enterprise at Xero