When it comes to taking care of your business’ tax situation, we’re all familiar with those end-of-year feelings of anxiety and dread. It seems we always find ourselves asking how so much could get left until the last minute. Well given that it’s only August, here are a few things you can do now to help you minimize (if not eliminate) that end-of-year anxiety—not to mention lower your tax prep fees come filing time.
Cleaning Up Your Books
While it is generally a good idea to keep your books “clean” all year long, many business owners are strapped for time and it’s easy to let things slip. Now would be a great time to make sure all of your accounts that can be reconciled are balanced with the proper statements. You can reconcile not only bank accounts, but credit card and loan accounts too. Make sure the balances of these accounts on the balance sheet match the balances on the monthly statements. Are you properly recording all of your debit card transactions, bank fees, and the interest portion of your loan payments? These are all common bookkeeping errors that must be addressed before an accurate tax return can be filed. You don’t want to cheat yourself out of legitimate tax deductions—so reconcile those accounts each month!
Mid-year tax review
Now is a great time for a tax projection, especially if you are a sole proprietor or subject to self-employment tax as a general partner or LLC member. Tax planning now will help you to make wise, tax-friendly business decisions for the rest of the year. There are many tax saving techniques that can be employed throughout the year and in all honesty, it is almost impossible to tax “plan” after-the-fact. Some things you could be considering now include...
- Setting up a tax deferred retirement account (and funding it)
- Purchasing fixed assets now instead of waiting until 2013
- Timing your vendor payables and customer receivables
All of these techniques vary in their usefulness depending upon your method of accounting for tax purposes, your cash flow needs and whether or not they make good sense for your business. I encourage most business owners to set up a mid-year year meeting with their CPA. (At our firm we love to hear from our customers more often than just at tax time!)
1099-MISC and Other Payroll Housekeeping
We advise all of our clients to obtain a federal form W-9 from every subcontractor before they begin work. Waiting until year end to try to get tax identification numbers, addresses and full names of your 1099-MISC eligible vendors will leave you with missing information and holes that will cause you to delay filing the forms by the January 31 deadline (US only). It appears that these forms are set to be used by the IRS as an audit trigger as evidenced by the 1099-MISC questions that popped up on all business related US tax forms in 2011. In the US, the IRS wants you to be compliant in issuing 1099-MISC forms to all vendors who qualify and they can fine you for incomplete or incorrect forms. Have your vendors fill them out before beginning work. If they have already begun work, insist on getting this form as soon as possible and certainly before next January. While you’re at it, you should get their worker’s compensation insurance certificates.
Dedicating a little attention now to these three areas will help you have a smoother, less expensive tax filing later. By heading off unexpected surprises like missing tax identification numbers and messy books that might be erroneously hiding tax saving opportunities, you can face the upcoming tax season with a little less trepidation.
Jennifer L. Todd, CPA, CGMA, is an accountant, small business owner and educator who specializes in accounting information systems, taxation and strategic consulting. Read her blog or follow her on Twitter @GenXerJen. You can also connect with Jennifer on LinkedIn.